“If left solely to their own devices, it ‘s a short cycle. Add gubmint money and “help” and it’s a long, neverending cycle (and the dumber they are free to be)”
I think it was structural changes in mortgage financing and widespread fraud that lengthened this last cycle. Going by affordability numbers the housing cycle should have peaked around 2003. Of course it didn’t, instead it got a second wind and roared off into bubble land.
After 2003 Wall Street’s private market securitizers were taking market share away from Fannie and Freddie. The rating agencies were slapping AAA ratings on that paper, Wall Street financiers were deluding themselves with the Gaussian copula function, and derivatives were driving the demand for huge quantities of subprime paper to be used as derivative fodder.
The old model of lenders writing and often retaining their own mortgage paper had a built-in bias towards safety. Fannie and Freddie had a monopoly on reselling that paper. It was conforming, it was predictable, it was safe and boring.
But this last cycle blew up that model. The new model was an independent broker writing mortgages, using a warehouse credit line from Wall Street. Neither the mortgage broker nor the Wall Street lender had much concern for the credit quality of the borrower. The buyers of the resulting paper didn’t know how risky the underlying loans were until everything fell apart when the bubble collapsed.
“Riegle-Neal Act “
That’s one I’m not familiar with. I see from a quick look at wikipedia that it is similar to Gramm-Leach-Bliley, which repealed part of Glass Steagall.