Mortgage Loans
Bank loans and real estate bubbles
In my opinion the banks have no responsibility for the formation of housing bubbles.
However, it is usual to be accused of being an essential component in the formation of these bubbles. The reasoning is that if you do not give much credit to buyers of real estate bubbles would not form because buyers have less money to buy and the prices would not rise much.
It is true that banks give all the credits that can, always taking into account their risk controls. It’s the same stuff as any other person or business, offer your services or products to obtain maximum benefit. And no wonder that many people get to thinking that lowering the credit many buyers do not have money and therefore could not buy and do not raise prices.
But the banks when giving loans, they behave the same way with the buildings as with cars, plasma TVs or sofas, give credit to anyone who think they will be able to return. So why are not real estate bubbles and bubbles cars, plasma TVs or sofas?. The answer is very clear: Read the rest of this entry »