Did Greedy Homeowners Cause the Big Crash?

homeownersWhy did our economy crash, plunged into disaster by the market in mortgages for our houses? Lots of skilled economists and loud ideologues have proposed explanations for the Depression of 2007-2010 (as good a name as any). Democrats and Republicans have offered party lines and some individual interpretations.

I know I can’t grasp the complicated writings of the experts and I get bored by political propaganda. But there’s lots of writing for the rest of us, and I have read some of it. We American homeowners appear as co-conspirators in many judgments about what caused the crash. In these interpretations, many of us were greedy for wanting bigger homes than we deserved, foolish to have then bought larger houses than we could afford, and stupid for agreeing to the low-interest/low-payment scams of mortgage sellers.

What a crock. It is easy to reply that right up to the crash, the American desire to own a home was constantly being bragged about by American politicians as proof of our democracy, and applauded by bankers, manufacturers, and workers in the building trades.

Unscrupulous mortgage brokers targeted people who must rely more on trust than on understanding of high finance. Then many other bankers, the “scrupulous” ones, played even stupider and riskier games with our money. Meanwhile, government regulators and politicians stood on the sidelines.

Veiled accusations by the political-economic power structure that it’s all our fault are partly to blame for our vile mood about them. But it’s worthwhile to put aside such defensive replies and wonder what role we Homeowners of America played in the crash.

Here’s what I think from my own life. I never want to go back to living in someone else’s home or building. Being able to afford your own home is one of life’s great privileges. When we finally bought our first home, I was happy to mortgage 30 years of my future, and thought that was a wise financial choice. Now in a bigger and more interesting home than I ever thought I could live in, I still want to improve it. That very common desire might mean moving for some people; for me it means pouring money into restoring our Victorian house.

It all adds up to the same thing: Going into debt to live in our own place seemed like a no-brainer.

But many people used huge risky mortgages as speculative investments, assuming that house prices would never stop rising. They contributed to the housing bubble, whose explosion put all of us at risk.

Those of us who see our houses as homes, not money-makers, also took risks. Too manyAmericans, myself included, want too much. The highest standard of living, including the biggest average house size, in world history is still not enough. We went into debt to finance unnecessary luxury.

Not planning for the biggest international economic disaster since the 1930s doesn’t make us reckless or foolish. Many homeowners could, however, have been better risk planners.

But we need assistance from the people we pay to advise us on matters beyond our knowledge. Bankers, media financial commentators and our elected officials could have been much more helpful in warning us and protecting us.

Steve-HockstadtThe idea that American homeowners are at fault for our country’s economic problems happens to come from the very people who I think were the real problem: Bankers and other financial wizards who championed their right to operate just as they wished. Some of them lost their jobs, but only after raking in more money than I’ll ever earn. The rest are still “earning” big bucks playing with our money.

Our biggest mistake — putting our lives in their hands.

Steve Hockstadt

Mr. Hochstadt is professor of history at Illinois College in Jacksonville, Illinois, and author of Sources of the Holocaust (Palgrave, 2004) and Shanghai-Geschichten: Die jüdische Flucht nach China (Berlin: Hentrich und Hentrich, 2007).

Published in the Jacksonville Journal-Courier. Published with the author’s permission.


  1. says

    Good article. (But inscrutable prior comment. For instance, what’s a ‘GSE’?)

    The article leaves unasked and unanswered at least one set of relevant big questions for our social and economic future. Namely, thanks to that housing bubble, many mostly-big houses did get built. Was that good or bad, and what can we do?

    My nuclear family comprises just myself: my son is adult, and I am a widower. If I were to move at all, I would prefer to live in my own modest house, with a bit of land to garden, and convenient to everyday services in a small-scale commercial neighborhood. However, the new housing being built en masse at least here in SoCal are McMansions which reject the joys of California living and were built to promote sprawl. They have lots of extra room and rooms inside to warehouse gobs of people, but little and poorly conceived outside space; and are far from basic services like groceries.

    So the actually allowed and built new housing has been tailored to developers making bucks from actual or envisaged big families who want to live in a largely artificial existence indoors away from nature, and to drive to every activity and function outside the home.

    However there is a silver lining to the big houses. They don’t suit the way more and more of us WANT to live, but long-term they do partly suit the way more and more of us will be FORCED to live, as the economy and resource base inexorably contract (in per capita real terms, if not in nominal total dollar terms).

    Already my existing halfway-big house is filled, as my son has moved back in, as has a marginal-income friend and also a foreclosed neighbor.

    Eventually today’s overly restrictive zoning regs will have to change or be quietly violated en masse, and in many tract neighborhoods some of the big houses will convert in part to small-scale neighborhood service shops and grocery outlets.

  2. harry says

    I am not playing with your money, I feel it is the other way around. I only buy what I have the money to aford. I pay my credit card in full each month and do not charge what I can not pay. If you (those unlike me) had done the same, we MIGHT be better off. The GSEs caused a lot of the problem and are still being funded by you and me. Bank of America has paid back the money lent to it and the GSEs have not. But do not think that those you wrote of in this article did not help put some holes in the big housing bubble. They did…

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