Even though the panel I was on last night had nothing to do with housing, the guy up on stage playing the cranky rightwinger role couldn’t resist making an offhand reference to the idea that our problems are grounded in the fact that people bought houses they couldn’t afford. I think this misunderstands the issue in an interesting way that’s worth spelling out in slightly tedious detail.
Start out with the idea that a developer builds a house out of cash that he has on hand. Now you have an asset "” a house. Then he sells the house to a person, who buys it with a mortgage. Now you have two assets. There’s a house, owned by a family, and a loan owned by a bank. Then the loan goes through the securitization rigamarole but the loan still exists out there somewhere as a financial asset. And then there’s the house. The homeowner has possession of the house, and he also has an expense in the form of his mortgage payments.
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