“The only thing that made Yurtle the Turtle an epic failure vs a celebrated hero was TIME. If his turtle stack had stood for even a few years prior to crashing down, people would surely call him a champion for sitting atop the highest mountain ever and staring at the sun with bold determination.”
History Parallels Lesson:
The 2008 housing market crash happened for 6 main reasons. Like Yurtle the Turtle, the problems stacked on top of themselves to ultimately cause an epic crash.
1) The federal government called for greater home ownership and desired for “everyone to own a home.” President Bush pushed for Fannie Mae and Freddie Mac to be the buyer of last resort and buy up massive amounts of mortgages in an attempt to make home ownership more affordable for all, especially the poor. The turtle pile begins to form with strong leadership by Yurtle himself!
2) The FED is encouraged (by government) to lower the interest rate to nearly zero. This allowed a far greater number of loans to be issued. 5 turtles are added to the pile.
3) The banks, encouraged that they can now sell off their riskier mortgages to Freddie/Fannie (see #1) lower their lending standards. People who could never hope to get a loan before are offered loans. “NINJA” loans come into common vernacular in the mortgage industry. As promised, Freddie and Fannie buy up the loans without question. 15 more turtles are added to the pile.
4) The market goes bananas over housing. Mortgage-backed securities” and other derivatives begin to be sold and oversold. If the above 3 items were the gasoline, this was the spark. The good mortgages are packaged up with the bad (“subprime”) mortgages and create an entirely new asset class. Which is then bought and sold at AAA rating (see #5). 20 turtles jump on the pile.
5) The professional rating agencies like Standard and Poors, whom are supposed to be the impartial gatekeepers, are all but paid off to go along. They rate these awful MBS products (even many of those filled with subprime mortgages) as triple-A. 20 more turtles
6) CDOs and synthetic CDOs enter the scene and allow a serious brush fire to become a national catastrophe. Tranches of nothing but bad subprime mortgages and MBSes were themselves pettled off and repackaged (and certified AAA); thus a billion dollars in bad loans could easily become 50 billion dollars in the secondary marketplace. 100 turtles slowly climb to the apex.
This is what came crashing down in 2008. Many of these same issues are now again rearing their ugly heads.
History is repeating itself.
- we have zero interest rates
- the CDOs are coming back
- the government is pushing for relaxed housing standards again
- those who shouldn’t be getting loans are getting them
- government is paying many people’s way to home ownership with 0 down
The turtle stack is wobbling at the base and its bold leader is still being heralded as a hero. Time will tell.