I’ve gotten a lot of favorable comment on my Tuesday sidebar about how bond investments, arranged by Goldman Sachs and other Wall Street titans, fueled the housing boom here, just as they did everywhere else.

I had to go over to Dean Kahn and apologize to him, because last Thursday, when Dean assigned me to do this story, I got all grumpy about it because I had a lot of other things to do and I didn’t see why a McClatchy News Service piece required a contribution from me.

But in the limited amout of time available, I used online resources that nobody dreamed about when I started in this business: county property records, federal court records, SEC filings, a Standard & Poors report,  and of course, Google, to help me find what I was looking for in all those places.  It just took a few minutes. Before the Internet, it would have taken weeks or months, which means it simply would not have happened.

I already knew about mortgage-backed bonds, and their role in the housing boom-and-bust that sent the world economy lurching close to the abyss. But tracing that one little Ferndale mortgage back to Goldman Sachs and beyond really helped to make it all real for me.

Do you remember when house prices were going to the stratosphere around here just a couple of years ago? Everybody knew it was caused by rich people moving up here from California, and by zoning that restricted the supply of buildable lots, and by this area’s fabulous quality of life.

But the real reason was the availability of mortgage money. Unprecedented numbers of people were able to qualify for loans, because lenders knew that bond-buyers were hungry for mortgage-backed securities. The lenders could, in effect, sell the loans to the bond buyers, who thought they were getting safe returns because people always make their mortgage payments. And even if they don’t, the price of homes always rises, meaning that the collateral on the loan gets more valuable over time if that borrower guy messes up. Nothing could go wrong.

The result: All those home-buyers used easy mortgage loans to bid up the price of real estate. Speculators saw the rising prices and jumped into the market too. Still other people saw the rise in value of their own homes and decided to cash in some of their equity. But then the great, roaring engine of paper wealth ran out of steam and the panic set in.

This entry was posted on Tuesday, November 3rd, 2009 at 6:04 pm and is filed under Consumer. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.