Talk:Subprime mortgage crisis/Archive 2

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Archive 2

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Contents 1 Proposed article title change to "2007 credit crisis" 2 Requested move 2.1 Survey 2.2 Discussion 3 Link to Autoandhomeinsurance.org 4 Simplified the Intro 5 Rewriting major parts of the article 6 NAACP and racism 7 Impact on women 8 German banks (IKB and WestLB) writedowns are missing 9 Removed? Why? 10 The housing bubble collapsed not the housing market 11 Quotes from Bernanke speech 12 Real time update tag 13 Reported but unconfirmed write-downs total $6.8 bln 14 rename 14.1 poll 14.2 Survey 14.3 Discussion 15 Image show violates Wikipedia No original research? 16 New Diagram 17 Impact vs Causes of the crisis. 18 Article Rating 19 Too Long/Intro Tag

Proposed article title change to "2007 credit crisis"

What are the thoughts on possibly changing the title of this article to a broader title, such as the "2007 credit crisis?" The current title seems a little narrow in scope. Publicus 15:03, 17 September 2007 (UTC)

• Strongly support : The credit crisis did not affect just sub-prime bonds. Aftermath affected even AAA and AA banks. Companies such as Merrill Lynch saw their credit spreads (interest rate paid on loans / bonds) increase by 100-200 basis point (100 basis point = 1 %). Also the sub-prime normally refers to mortgage loans. However the crisis also affected high yield low quality corporate and sovereign bonds . --DuKot (talk) 05:06, 23 November 2007 (UTC)
• Support. I'd be happy with 2007 Banking Scare, credit crises being less encyclopedic. Given the evidence of reduced global growth from the IMF et. al. I don't think it can be classed as a crisis yet. To get a sensible all embracing name, perhaps we need to agree on the underlying causes. I'd say that for the UK & US - I can't speak for anywhere else - we're in a cyclical transition from a decade of abnormally low real interest rates (loose, easily available credit) to normalised real interest rates (tighter, less easily available credit). Some stupid people, be they borrowers, lenders or investors, mistakenly took a view that interest rates would remain low, and are now having difficulty meeting interest payments on assets that are decreasing in value. As a separate issue, but with possibly the worst possible timeing, credit ratings agencies, upon whom investors rely, have been found to have made basic errors when assessing the quality of the underlying assets and ability to repay, and new worldwide accounting standards, Basel II, are forcing banks to increase their capital base and/or reduce lending. -- John (Daytona2 · talk) 10:33, 23 November 2007 (UTC)
• Oppose. The genesis of the knock-on effects you identify all stem from subprime. In terms of including the year, it is quite apparent that most of the mortgage defaults will actually occur in 2008. We could wait until January and change it then. Keep in mind that the U.S. banks will actually report their dismal 4th quarter results during January. I actually prefer The United States subprime mortgage crisis (much like the Great Depression has no dates); does this article title need a date -- has their been another subprime crisis? Deet (talk) 02:14, 24 November 2007 (UTC)
• Support - it has become wider - Northern Rock was not about US subprime --Rumping (talk) 01:33, 27 November 2007 (UTC)

But it sort of was about US subprime, which caused the liquidity crunch that hit NRK.Deet (talk) 02:08, 29 November 2007 (UTC)

• SuOppose if we change the content to cover the entire credit market. Do we have such an article already? Do we delete the old one or create two? Radio Guy (talk) 02:54, 29 November 2007 (UTC)

• Strongly Oppose. This crisis is rooted on subprime mortgages, therefore removing it from the title is confusing. IMO the title should be 2007 subprime mortgage crisis or 2007 mortgage bubble. 2007 Banking Scare is just horrible, aren't you joking?

• @-DuKot:IMO the credit crisis is simply consequence, not its cause. The cause of hte credit crisis are the mortgages, so the name mortgages has to be present on the title IMO.

EconomistBR (talk) 18:48, 10 December 2007 (UTC)

• Comment. I have started to see my suggested name, United States subprime mortgage crisis, in more media articles and analyst write-ups. Deet (talk) 23:08, 12 December 2007 (UTC)

• Comment. @Deet. Good , I like your name, United States subprime mortgage crisis is fine IMO

EconomistBR (talk) 04:09, 14 December 2007 (UTC)

Okay, we're in 2008 now, so I'm going to propose my suggestion for a poll:

Link to Autoandhomeinsurance.org

I've removed the link to Subprime crisis: implications for the insurance industry, as did Flowanda, but I'm documenting this here to avoid an edit war. Should this link be included? Finnancier 12:21, 8 October 2007 (UTC)

I agree, the link is uNnecessary, it adds very little new information and it's only 3 paragraphs long. The only really relevant piece of information IMO is:

both by law and by the nature of their business, insurers generally limit themselves to the low-risk end of the investing universe.

I agree with Finnancier and with Flowanda. The link should be removed.

EconomistBR 14:20, 8 October 2007 (UTC)

Simplified the Intro

Sometimes ordinary people, the kind of people like me who took out essential loans with low hardly moving interest payments and didn't notice that another way of getting screwed was that the principle was quietly getting bigger and bigger, read Wikipedia seeking enlightenment on a subject, and too often an "expert" gets to give information that is beyond comprehension. Anyway, now that the government may be stepping in, it's time to heed these people, and to that end, I've tried to lighten up a little on the introduction so that a person could stop at that point. There are two sides to the crisis certainly, but in my opinion the consumers' side is always given in simple terms (greed etc.) and the lenders' side is so full of Wall Street gibberish designed, often, to obscure or conceal their much greater greed. Still, greed makes the world go round, I guess. Accounts for the dizziness. JohnClarknew 08:08, 7 December 2007 (UTC)

Rewriting major parts of the article

I'm trying to do a major rewrite since this article really doesn't give a good description of what happened, and what all of the moving parts where.

Roadrunner (talk) 12:51, 16 December 2007 (UTC)

Thanks RR, there's far too much unencyclopedic stuff. Wikipedia:RECENT has some wise words -

"The "ten-year test" is one simple thought experiment which may be helpful: "In ten years will this addition still appear relevant? If I am devoting more time to it than other topics on the page, will it appear more relevant than what is already here?" For example, in 2004 devoting more time on George W. Bush's page to the ongoing election rather than his previous one may have seemed logical. However, in ten years, when neither event is fresh, readers will desire the emphasis be balanced between both."

"After "recentist" articles have calmed down, the instigating news story has dropped from the Main Page and the front pages of newspapers, and the number of edits per day has dropped to a reasonable minimum, concerned Wikipedians ought to initiate comprehensive rewrites. Most articles can be condensed to keep only the most important information, the wider notable effects of an event, and links to major issues to which the article is related. Much of the timeline content and day-to-day updates with minor details can safely be excised."

-- John (Daytona2 · talk) 14:17, 16 December 2007 (UTC)

Take your shot Roadrunner. Just split your edits into several entries so we can review or modify specific ones easily if need be. I did the last major rewrite about a month ago.Farcaster (talk) 23:13, 16 December 2007 (UTC)

NAACP and racism

I think we could do a better job of explaining the reasons for the law suit. I've added some information, but it would be a good idea to show the parallels between subprime loans and redlining, although scholarly analysis of thee factors is only now emerging. We need to explain that is is systemic, rather than "conscious" racism at work-- What are some good sources that talk about this issue? futurebird (talk) 20:06, 19 December 2007 (UTC)

I don’t see how this relates to the “role of financial institutions in causing of the 2007 subprime mortgage financial crisis”. It seems like an impact of the crisis not a cause and should be moved to the impact section. It is a criticism of subprime lending and should be in that article. (Halgin (talk) 19:30, 21 December 2007 (UTC))

Okay that makes some sense-- although the NAACP suit is in response to this most recent wave of loans, so I think we should at least mention that. futurebird (talk) 05:26, 23 December 2007 (UTC)

Impact on women

We might want to look in to this too:

• Women and the subprime crunch Boston Globe 10/22/2007

futurebird (talk) 20:15, 19 December 2007 (UTC)

German banks (IKB and WestLB) writedowns are missing

I've searched everywhere but apparently german state banks are having their losses compensated so they are not posting writedowns.

Reuters in August estimated that IKB standed to lose "up to a fifth of its $23.99 billion subprime investment" or $4.8 billion in writedowns. http://www.reuters.com/article/gc06/idUSL0345210820070803

~But I can't find it anywhere EconomistBR (talk) 18:28, 21 December 2007 (UTC)

Removed? Why?

Some subprime lending practices have raised concerns about mortgage discrimination on the basis of race.^[1] African Americans and other non-whites are being disproportionately led to sub-prime mortgages with higher interest rates than their white counterparts. .^[2] Even when median income levels were comparable, home buyers in minority neighborhoods were more likely to get a loan from a subprime lender. This may in some cases be due to other objective metrics such as credit ratings or past bankruptcies.^[1] However, in July 2007, a report published by the Federal Home Loan Mortgage Corporation showed that minority borrowers pay higher annual percentage rates on mortgage loans than non-minorities with equal income and equal credit risk. In 2005, African American borrowers paid an average of 128 basis points more for loans than their white counterparts.^[3] In the subprime market, the difference was greater: 275 basis points more. This has lead the NAACP to file a class action suit against a large group of lenders charging racism in lending practices.^[3] However, home ownership among black Americans has increased from 42% to 48% since the mid 1990's, with the overall rate of U.S. home ownership increasing from 64% to 69%. Subprime loans were a significant contributor to this increase.^[4]

1. ^ ^{a b} Manny Fernandez (October 15, 2007). Study Finds Disparities in Mortgages by Race. The New York Times. Retrieved on 2007-12-16.
2. ^ NAACP Fights Loan Discrimination
3. ^ ^{a b} NAACP: Bailout Mortgage Plan Is Too Little Too Late for the Majority of African American Borrowers; Amended NAACP Class Action Filed Today Naming Additional Lenders By: Marketwire Dec. 18, 2007
4. ^ http://www.economist.com/specialreports/displaystory.cfm?story_id=9972531

Why was this removed? It's sourced and on-topic? I don't understand. If soild sources say that racism played a role in reckless lending and the meltdown we ought to mention what those sources say. futurebird (talk) 05:24, 23 December 2007 (UTC)

I agree with the removal, with all respect, this article is about a financial crisis not about WHO bought subprime mortgages or racism in America. It escapes the scope of the article and it belongs somewhere else.

Subprimes were sold at alarming rates, bundled together with prime mortgages and sold as low risk securities (CDOs, ABSs and MBSs) at the height of the housing bubble. This is the article's scope, its core.

This article talks less about the failure of rating agencies than about baby boomers, which are mentioned in this article. It makes no sense at all.EconomistBR (talk) 16:38, 23 December 2007 (UTC)

This should definitely be reinstated into the article. There was widespread direction of blacks and non-whites into subprime mortgages who would have otherwise qualified for prime mortgages. Several branch managers at Countrywide FSL resigned when emails to this effect became public in Autumn 2005. RESPA and other industry restrictions are mainly borne out of a desire to reduce such discriminatory lending practices. I will find out which managers resigned in CA before I edit the article. DavidMSA (talk) 13:13, 18 March 2008 (UTC)

The housing bubble collapsed not the housing market

Had the housing bubble continued to inflate we wouldn't be having this crisis, so the bubble had to collapse in order for the crisis to begin.

We may add a different terminology like: "with end" or " with the burst" IMO we should make clear the housing bubble has ended. EconomistBR (talk) 01:17, 29 December 2007 (UTC)

By the way, home prices are the prices of another cost of living. When it goes up, it is BAD news for consumers. If we apply the sick logic of the David Lereah's of the world to the oil market, we should be cheering that oil prrices are climbing. Radio Guy (talk) 23:35, 30 December 2007 (UTC)

Hello BR...appreciate your many helpful edits to this article. The housing bubble article is also very helpful. I just thought the word "collapse" was a bit sensationalistic, especially in the intro. Things haven't "collapsed" yet in my view, although they very well might. Perhaps we can work the housing bubble portion in later in the intro as well? Something like: "Recent events signify that the U.S. housing bubble may be deflating, as home prices have begun to decline in many markets." I didn't want to overplay the bubble portion, as this is a complex topic in itself subject to lots of interpretation.Farcaster (talk) 01:37, 29 December 2007 (UTC)

Something as critical as that needs to be directly sourced from a highly respected source. See Wikipedia:Reliable sources. imo you're in danger of breaching Wikipedia:No original research and Wikipedia:Neutral point of view -- John (Daytona2 · talk) 19:47, 29 December 2007 (UTC)

According to the Wall Street Journal, "It's now conventional wisdom that a housing bubble has burst." According to Treasury Secretary Paulson, "[T]he housing decline is still unfolding and I view it as the most significant risk to our economy." I've added the appropriate citations and the Wall Street Journals "conventional wisdom" language. Frothy (talk) 23:03, 30 December 2007 (UTC)

Funny how for a year and a half, NAR shill David Lereah kept saying that there has never been a nationwide downturn in home prices. Seeming to say it will never happen. We've now had the case-Shiller index decline for more than one year's worth of nationwide home prices. Radio Guy (talk) 23:33, 30 December 2007 (UTC)

I support the expression "bursting" I think it's less extreme than "collapse". And it's not POV.

When does any bouble burst?? When prices begin to fall. The Dot com bubble burst on March 10, 2000 after this date prices were never as high.

EconomistBR (talk) 00:51, 31 December 2007 (UTC)

Yes Treasury Secretary Paulson stated, "[T]he housing decline is still unfolding and I view it as the most significant risk to our economy." according to the reference at "[1]. However, he says nothing about the housing bubble bursting in the reference. This reference should be removed from the statement about the housing bubble bursting.

(Halgin (talk) 16:23, 1 January 2008 (UTC))

Quotes from Bernanke speech

The Quotes from Bernanke speech in the "The Federal Reserve" subsection of "Actions to manage the crisis" currently says: "In early 2008, Ben Bernanke said: "In all likelihood, the housing contraction would have been considerably milder had it not been for adverse developments in the subprime mortgage market. Since early 2007, financial market participants have been focused on the high and rising delinquency rates of subprime mortgages, especially those with adjustable interest rates (subprime ARMs). Currently, about 21 percent of subprime ARMs are ninety days or more delinquent, and foreclosure rates are rising sharply...Although poor underwriting and, in some cases, fraud and abusive practices contributed to the high rates of delinquency that we are now seeing in the subprime ARM market, the more fundamental reason for the sharp deterioration in credit quality was the flawed premise on which much subprime ARM lending was based: that house prices would continue to rise rapidly. When house prices were increasing at double-digit rates, subprime ARM borrowers were able to build equity in their homes during the period in which they paid a (relatively) low introductory (or “teaser”) rate on their mortgages. Once sufficient equity had been accumulated, borrowers were often able to refinance, avoiding the increased payments associated with the reset in the rate on the original mortgages. However, when declining affordability finally began to take its toll on the demand for homes and thus on house prices, borrowers could no longer rely on home-price appreciation to build equity; they were accordingly unable to refinance and found themselves locked into their subprime ARM contracts. Many of these borrowers found it difficult to make payments at even the introductory rate, much less at the higher post-adjustment rate. The result, as I have already noted, has been rising delinquencies and foreclosures, which will have adverse effects for communities and the broader economy as well as for the borrowers themselves"

It is not about the Federal Reserve of actions to manage the crisis. It is about the problem, it causes, and impact. Most of what he says is already stated in this article. It should be moved to other sections of the article. (Halgin (talk) 04:51, 12 January 2008 (UTC))

I'll back you up in taking it out HalginFarcaster (talk) 05:56, 12 January 2008 (UTC)

Seconded -- John (Daytona2 · Talk · Contribs) 23:48, 12 January 2008 (UTC)

I agree, it can be taken out. Nice quote though, I really liked this bit:

Once sufficient equity had been accumulated, borrowers were often able to refinance, avoiding the increased payments associated with the reset in the rate on the original mortgages. —Preceding unsigned comment added by EconomistBR (talk • contribs) 14:57, 13 January 2008 (UTC)

Does it seem ridiculous to anyone else that unelected officials like Ben "Shalom" Bernanke get to make unilateral proclamations regarding the US economy and every one nuts all over themselves trying to pay attention to what he has to say? Listening to him speak definitely makes me lose respect for Princeton as an academic institution, at the very least. DavidMSA (talk) 20:08, 24 March 2008 (UTC)

Real time update tag

Should the tag remain? What else is dated and could use an update? EconomistBR been doing a nice job with the losses.Farcaster (talk) 03:30, 17 January 2008 (UTC)

Thank you for the compliment. I am simply trying to keep up with all of you.

The user Kendrick7 who added that tag didn't explain why he tagged the article. So based on this fact I think we could remove it. EconomistBR (talk) 05:32, 17 January 2008 (UTC)

A tag to indicate it is a current event (i.e. {{current}} ) is more appropriate. — Deon Steyn (talk) 07:57, 17 January 2008 (UTC)

Template:Current is only to be used when edit conflicts are occurring, to warn others. I discovered Template:Inuse and Template:Underconstruction yesterday for use when trying to prevent other editing during periods when you're making long edits. Cheers -- John (Daytona2 · Talk · Contribs) 11:44, 17 January 2008 (UTC)

Reported but unconfirmed write-downs total $6.8 bln

Source: http://www.financialnews-us.com/?page=ushome&contentid=2349568128

1. WestLB- $520 mln
2. Commerzbank- $430 mln
3. Unicredit- $402 mln
4. Northern Rock- $574 mln
5. HBOS- $1,061 mln
6. Societe Generale- $340 mln
7. Lloyds TSB- $ 409 mln
8. Kaupthing- $126 mln
9. Investec- $74.1 mln
10. KBC Bank- $14.8 mln
11. BNP Paribas- $340 mln

Source: http://news.bbc.co.uk/2/hi/business/7191795.stm

1. IKB Deutsche Industriebank- $2.6 bln
2. BNP Paribas- $439 mln

Could anyone confirm and add those numbers?? I don't think is wise for me to add them because I can't confirm the write-downs anywhere.EconomistBR (talk) 17:55, 17 January 2008 (UTC)

I don't think we're through with it all, yet. Better wait till the end of the ride. --Rwst (talk) 12:16, 25 February 2008 (UTC)

Funny thing how all of these non-American banks have so much exposure to this mess, isn't it? Not really, maybe the better word is ironic... DavidMSA (talk) 20:10, 24 March 2008 (UTC)

rename

This article has been renamed from 2007 subprime mortgage financial crisis to subprime mortgage crisis as the result of a move request.

Image show violates Wikipedia No original research?

Does the image constitute original research? Does this image violate Wikipedia:No original research rule? All material in Wikipedia must be attributable to a reliable, published source. May not contain any new analysis or synthesis of published material that serves to advance a position not clearly advanced by the sources. (Halgin (talk) 00:41, 30 January 2008 (UTC))

Hello Halgin: My intent is to explain what is actually in the article already, using a simple diagram. My intent was not to put anything in there that isn't attributed to sources in the article. Is there a particular aspect that is beyond what we have sourced in the article? I can modify; let me know.Farcaster (talk) 05:06, 30 January 2008 (UTC)

Halgin does have a point. Do we have any sources that explain the Subprime Crisis as it is being described by the diagram? If not, how big a problem that is? The diagram's points are definetely all sourced.

I find the diagram very useful. But the diagram gives the same weight to the many variables that caused the crisis.

Also the effects of this crisis haven't yet ended, but that's the impression given by the diagram, we just learned this week that new home sales for 2007 were the weakest in two decades. http://ap.google.com/article/ALeqM5jsanM66tszKz1zFq0LOG4XvWS7zAD8UF7UD00

I am really glad though to see that you Farcaster took the time to create the diagram. EconomistBR (talk) 06:38, 31 January 2008 (UTC)

We three seem to be among the primary editors of this article so I'll defer to you guys. I would say that since the diagram elements are sourced and that I'm not creating new synthesis of ideas (e.g., the relationships among the elements are also sourced, at least that was my intent) we should be OK. If I tried to cite particular elements as more important than others I might be on thin ice. I will work soon on an updated diagram that indicates an "as of date" and shows that the effects/results feed back to each other, rather than being linear left to right. This will help indicate we're in the middle of this thing. Will that work for you guys?Farcaster (talk) 18:03, 31 January 2008 (UTC)

I'm new at this. The source is the article or sources that are in the article? As of what date? We need to understand where it came from and when. (Halgin (talk) 23:01, 31 January 2008 (UTC)).

IMO, this diagram should show the causes and the consequences of the Subprime Crisis in one single time-line "continuum". IMO, with all respect, the current diagram is fundamentally wrong because it fails to show how the many variables affected each other causing really complex interactions. Do you, Farcaster and Halgin agree?

Farcaster, your great initiative to summarize the entire subprime crisis in a diagram is a difficult undertaking and it will create controversies, so don't take offense over this.EconomistBR (talk) 01:26, 1 February 2008 (UTC)

I created this updated image.

Let me know what you think. It tries to show the linkage of the key elements. It also says that many such linkages not shown (see bottom left) and the arrows at top right now go both directions, to show feedback. Plus, it's got more colors! If you like better, I'll include. The other has the virtue of simplicity, although I agree with Econonomist BR that it may be too simple. Halgin, what Econ and I are saying regarding sourcing is that each box in here could be traced to a source in the article if we had to. Since the reference # keep moving, I didn't want to label each one.Farcaster (talk) 17:35, 2 February 2008 (UTC)

Can you make a list of your sources for the image on the page with the license? If it is in the article it should have a source. The image should use the same sources as the article. (Halgin (talk) 00:58, 5 February 2008 (UTC)).

IMO this new version is better. It's now possible see how some aspects of the crisis interacts with the others and how the consequences create their own consequences.

1. The NY Times stated in that the Fed interest rate cuts of 1.25% are a response to the threat of recession: the central bank acknowledged that it is now far more worried about an economic slowdown than rising inflation, and it left open the possibility of additional rate reductions.http://www.nytimes.com/2008/01/30/business/30cnd-fed.html?hp
2. Is the box "Bankruptcy/Bailout of Weaker Lender" a consequence of the credit crunch or a consequence of the rising foreclosures or neither of them?
3. Why are there two boxes indicating Recession Risk?
4. "Investigation/Litigation" on what?
5. Why doesn't the diagram mention that "Between 1997 and 2006, American home prices increased by 124%" as a cause of the housing bubble?
6. Isn't the "Legislative Stimulus Package" and "Sotck Market Volatility" a response to the Credit Crunch/Recession Risk?
7. This quote "By January 2008, the inventory of unsold new homes stood at 9.8 months based on December 2007 sales volume, the highest level since 1981" indicates that the "Excess Home Inventory" happened after the "Housing Bubble Burst" and not prior to it.

EconomistBR (talk) 07:56, 5 February 2008 (UTC)

The above commentary is not intended to insinuate that your diagram totally problematic, to the contrary, it's simply meant to ask tough question about a diagram in order to provide inspiration for improvement. EconomistBR (talk) 08:55, 5 February 2008 (UTC)

If seeking inspiration, the BBC has a neat flowchart "THE NEW MODEL OF MORTGAGE LENDING" at the top of its article on the issue, comparing normal to subprime lending and showing how it goes wrong: http://news.bbc.co.uk/2/hi/business/7073131.stm Brisvegas 10:48, 5 February 2008 (UTC)

Good feedback. I'll have a version 3.0 for you by Monday. Need to think about this one a bit.Farcaster (talk) 04:48, 6 February 2008 (UTC)

In testimony by US Federal Deposit Insurance Corporation (FDIC) Chairman, before the Committee on Financial Services, U.S. House of Representatives, about their efforts to address the problems faced by subprime mortgage borrowers simular images were presented. It is Public Domain. :) (Halgin (talk) 01:16, 6 February 2008 (UTC)).

New Diagram

Nice one Halgin! This would good in the subprime lending and securitization articles. We might also include here as a thumbnail in the background section which covers some of the details of subprime lending. Up to you.Farcaster (talk) 04:48, 6 February 2008 (UTC)

Good ,another diagram, I really like diagrams they give bearings whenever I am reading something complicated. I looked at it and I would favor adding this new diagram as well. But IMO:

1. Some of the words are too small
2. Why don't the words CDOs, MBAs appear on that diagram?
3. I don't think that separating "Lender" from Mortgage Broker is necessary, since in many instances they are the same agent.
4. Mentioning "Servicer" I also thought as not necessary, the idea of a some sort of intermediary between the investor and the borrower is easily understood and common sense, IMO.

⇨ EconomistBR ⇦ Talk 23:49, 6 February 2008 (UTC)

Impact vs Causes of the crisis.

The following is an impact not a cause of the crisis.

According to the S&P/Case-Shiller housing price index, by November 2007, average U.S. housing prices had fallen approximately 8% from their 2006 peak. However, there was significant variation in price changes across U.S. markets, with many appreciating and others depreciating. The price decline in December 2007 versus the year-ago period was 10.4%. Sales volume (units) of new homes dropped by 26.4% in 2007 versus the prior year. By January 2008, the inventory of unsold new homes stood at 9.8 months based on December 2007 sales volume, the highest level since 1981. Further, a record of nearly four million unsold existing homes were available. Housing prices are expected to continue declining until this inventory of surplus homes (excess supply) is reduced to more typical levels. As MBS and CDO valuation is related to the value of the underlying housing collateral, MBS and CDO losses will continue until housing prices stabilize.

I moved something like it from the Cause section to the Impact section a few days ago and it is back in the Cause section. Am I missing something? (Halgin (talk) 01:12, 5 February 2008 (UTC)).

Hi Halgin...appreciate your help as always. We are both right; I put it earlier in the article because it is also a major cause of the crisis. The price decline in housing (due to overbuilding; supply exceeded demand) is probably what started this all off. Re-read the short op ed piece from Greenspan (the source of the quote at the end). Oversupply caused prices to start dropping; there are record levels of housing inventory out there, which by definition means housing prices must fall to offset the excess supply. Declining home prices kept people from refinancing, so they began defaulting due to the adjustments on their ARM that they couldn't get out of. I am concerned that if we have the housing price and inventory info towards the bottom of the article, we miss an important part of the cause. As Econ BR pointed out, many of the variables in this crisis feed back on each other. So we are both correct in that this is both a cause and impact of the crisis. As prices drop, people cannot refinance and default. This causes more price declines (if they sell in desperation and market psychology shifts). I would prefer to either leave as is or de-emphasize the text in the impact section section.Farcaster (talk) 03:39, 5 February 2008 (UTC)

IMO Halgin is right on this one, the subprime crisis caused a reduction in Home Sales greater than the reduction in the number of Housing Units completed in 2007 resulting in this excess of home inventory. This excess in home inventory seems to assure that the crisis will continue, but that doesn't change the fact that it is a consequence and an impact of the subprime crisis. Farcaster, you are right when you say that the price decline in housing begun as a result of excess of home inventory , but IMO this scenario of excess of home inventory will continue for some time otherwise home prices would start to move up and not down.

But there is also the issue of date, could we still be having Subprime Crisis causes in January 2008?

Farcaster, you first quoted and correctly thought about this "many of the variables in this crisis feed back on each other" I wished I had thought of it, but i didn't. We are definitely seeing this here, a consequence feeding itself.

This site has valuable statistics on Housing Units (starts, under construction and completed):

http://www.census.gov/const/www/newresconstindex.htmlEconomistBR (talk) —Preceding comment was added at 08:50, 5 February 2008 (UTC)

There is nothing in the paragraph linking the data provided to a cause of the crisis. If the data about current and past decreases home price was put in the same paragraph as the statement that housing prices started depreciating … making refinancing difficult, it would be related to a “cause”. The forecast of continue declining home prices needs to be link to the Role of Borrowers in Causing the crisis. So you are saying borrowers are defaulted because of they expect more declines housing prices? Financial institutions created MBS and CDO not borrowers. (Halgin (talk) 00:29, 6 February 2008 (UTC)).

I think we have a "chicken and egg" type quandary here. I see two ways we can explain this, each with drawbacks if we tried to advocate one over the other:

Scenario #1: ARM adjustments cause people to default and foreclose. We have a clear trend of increasing foreclosures. This is what creates the excess supply of housing, which then causes prices to decline rapidly. This is the point of view in the BBC article (http://news.bbc.co.uk/2/hi/business/7073131.stm) Brisvegas referenced above. The problem with this scenario is that as long as the housing prices continued to go up / bubble expanded, the default issue did not arise. People could flip the houses for a profit or otherwise refinance and the ARM adjustment was avoided. This scenario excludes the initial price shock/decrease we need to explain what started all this. This leads us to scenario 2.

Scenario #2: Home builders were building homes at a very high rate, expecting the boom to continue. However, rising interest rates and the long history of price increases made people think a correction was coming and they rather quickly stopped buying, creating an initial surplus of homes. This provides the initial price shock, as home prices stop climbing and decline marginally. The ARM adjustments then cause the defaults and foreclosures (because refinancing or selling was contingent on home appreciation) and the rest follows scenario 1 above. The housing "ponzi scheme" (Ted Koppel on NPR) collapses. Like stock prices, rising interest rates eventually bring investment prices down, whether bonds, stocks or homes in this case. People fought the Fed and the Fed won, so to speak.

I suspect the truth is somewhere in between. I have seen no data that proves either scenario. One or the other might have prevailed, depending on the market. For example, in this article (http://www.businessweek.com/bwdaily/dnflash/content/oct2007/db20071024_022437.htm?chan=investing_investing+index+page_real+estate) it appears that Chicago home builders just overbuilt (scenario 2). I think both probably had something to do with this. I think assuming everyone just started defaulting misses the price bubble bursting. To Halgin's point, we can clarify this better, like we do in the first paragraph. I'll take a cut at that.Farcaster (talk) 04:31, 6 February 2008 (UTC)Farcaster

After thinking about it, I believe that more important than the exact location of the paragraph on the text is the fact that the paragraph with valuable information is actually present, based on this I will not pursue this issue further. ⇨ EconomistBR ⇦ Talk 00:01, 7 February 2008 (UTC)

Article Rating

I would like to nominate this article as a Importance Rating as "HIGH". Versus other articles currently given a high importance rating, this definitely needs some attention. This is not to say that the article is any less than a B-GA right now, as I will review the criteria over the next fewe day, but those rating boxes ought to get filled in ASAP. T.o.anon84 (talk) 05:49, 14 February 2008 (UTC)

I'd just like to say that this is a good article from my point of view. Many well-summarized points. Just look at "Role of government and regulators". Only 5 sentences as of this comment, and each one makes a distinct, clear, and easily understood point. I just think this has been an excellent collective job. Deet (talk) 21:40, 5 March 2008 (UTC)

This article is a long way from being encyclopedia-worthy. I would say its somewhere between reading InTouch Weekly and The Guardian, at this point. Maybe in the future it will be worth a high rating but certainly not in this condition. If this were a baseball game the crisis would be in about the top of the 6th inning. The crediti default swaps haven't yet come into play and Goldman Sachs still hasn't made their move. DavidMSA (talk) 05:00, 18 March 2008 (UTC)

Too Long/Intro Tag

I've knocked it down to 4 paragraphs and fewer words per the standard. Is it short enough? Did I remove anything essential we should put back in? —Preceding unsigned comment added by Farcaster (talk • contribs) 04:32, 18 February 2008 (UTC)

Not sure why there should be so many different numbers to support "Defaults and foreclosure activity increased dramatically." in the introduction.

By October 2007, 16% of subprime loans with ARMs were 90 days delinquent or in foreclosure proceedings, roughly triple the rate of 2005. By January of 2008, this number increased to 21%. During 2007, nearly 1.3 million U.S. housing properties were subject to foreclosure activity, up 79% versus 2006. As of December 22, 2007, a leading business periodical estimated subprime defaults would reach a level between U.S. $200-300 billion.

It is confusing. (Halgin (talk) 00:02, 19 February 2008 (UTC)).

It's not really confusing (unless you're saying that the reason it's there in the first place is confusing) but I agree with you in principle. The necessary citations (4 & 5) should merely appear after the word "dramatically" and all the details would be available to the reader by following them. In any event, I don't think it belongs in the intro. Maybe wait a few weeks then remove it. Zain Ebrahim (talk) 13:05, 21 February 2008 (UTC)

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