A Subprime Parable By Michael Lewis

In 2008 the real estate market crashed because of the Graham-Leach-Bliley Act and Commodities Futures Modernization Act, which led to shady mortgage lending or “liar loans” (Hartman). The loans primarily approved for lower income and middle class borrowers with little income or no job income verification, which lead to many buyers purchasing homes they could not afford because everyone wants a piece of the American dream; homeownership. Because of “reckless lending to lower- and middle-income borrowers who could not afford to repay their loans many of the home buyers lost everything when the market collapsed” (Tankersley 3). Homeowners often continued to live in their houses for months or years without paying any

The real estate industry is thriving with approximately sixty-eight percent of all Americans being homeowners. With low interest rates, 1st time home buyer down payment assistance programs, and government funded educational opportunities (i.e. the Home Ownership Center of Greater Cincinnati), the real estate and mortgage lending industries will continue to flourish. However, there are some unethical lending practices that are threatening the housing industry as a whole.

In his essay “The Mansion: A Subprime Parable,” Michael Lewis uncovers the reality about the American real estate issue. A great number of Americans have obtained homes that they cannot afford. Banks have loaned out home loans that individuals cannot pay back. Some days it seems as if half of the nation is financially submerged. It is no doubt that certain home loan specialists, and numerous huge firms can be blamed for this crisis, yet they cannot be blamed for everything. Most of the blame, Lewis argues, has to be given to us, the citizens. The fact of the matter is that Americans are greedy, we desire luxurious things that we can show off to everyone around us to prove how well we are doing. This is true especially when it comes to housing. Numerous have been brainwashed into accepting that if a major house implies achievement, then the

Michael Lewis exposes the truth about the American real estate problem. Millions of American have bought homes they cannot pay for it. Banks have lent out mortgages that people cannot pay it. Propagandists have promised that real estate value will always rise. Some days it seems that partial of the nation is financially under water. Michael Lewis wrote this article to acknowledge the consequence of the horrific real estate crash, and the financial consequences that will get to the middle classes of people.

Monique Badun, a West Side real estate broker, recently sold a house for $8-million. “It had everything – except a wine cellar,” she says. “The buyer, a very serious collector, had to put one in. It cost $500,000. He didn’t even blink at the cost.”

The current real estate strife and “market meltdown” had a number of contributors; from the over-speculation in “bubble” markets like Florida and Nevada to Adjustable Rate Mortgages (ARMs) that attracted families not prepared to support the sudden increase in monthly payments. To repair the current market, give solace to homeowners not yet in foreclosure, and keep banks whole and prevent further closings takes an understanding of the factors that led to our current state, a plan to get us out of it, and a means to prevent its reoccurrence.

The exterior pictures showed a charming Colonial two-story home with a long driveway that led back to the two-car detached garage. There was a spacious fenced backyard with a deck. Another picture showed a street view of several surrounding homes.

You may think, well this mansion will be expensive for the place of this movie. But here’s the weakness, only the mansion is needed for the set and will cost less money than many movies that you have done already. It has the potential for earning you another Oscar and put your name on the big screen again. For a great movie idea like this we need to produce to gain you a profit and boost your

Around 2006 the price of houses began to fall substantially fast. “The oversupply of houses and lack of buyers pushed the house prices down until they really plunged in the late 2006 and early 2007” (The Subprime Mortgage Crisis Explained). These actions threw investors into a big dilemma. In the beginning they believed buying the mortgages would bring them a profit, but quickly realized that the mortgages would cost them more financial damage than reselling the homes. “Nationwide, home vales have declined about 16% since the summer of 2006 and experts project that the drop will continue until homes have lost about 25% of their value” (Biroonak, 2008). In other words mortgage homes are “underwater”, that is, the mortgage owed equals or exceeds the value of the house (Biroonak, 2008). Investors and homeowners started to go more in debt trying to pay off their original debts.

As well as the the institutions such as the big banks that constrain the people of the U.S economy through their bad loans forcing people to take out multiple loans on their house, and fueling itself through these bad loans. This then sets up the smaller systems such as mark’s team and Dr. Burry to short the housing market and make their fortunes when it

1. When I first saw the locations of the Lord family mansion at the beginning of the film, I observed the yard that located in the front of the Lord family mansion, where different breeds of flowers and trees were planted. Beside the mansion, there was also a full size and clean swimming pool. Furthermore, at the beginning of the movie, I observed while Katharine was talking to her mother about the second wedding, there were several maid and butler working on food and declaration in the background. I also noticed the decorations in the lord family mansion. For instance, the classical clock and the beautiful plates in the living room are quite luxurious and ornamental. Also, the family owns many valuable possessions. For instance, the car that parking in the front of the mansion seems very clean and assuming it is new and expensive. Katharine and her sister have their own private driver and car when they went out. The movie is clearly telling us that the lord family is a wealthy family. I learn about them through the settings of the film, the plots, and the production design in the film. For example, it’s definitely not a casual activity to ride a horse as we saw in the beginning when Katharine met her fiancé. Other than the mansion itself, I also observed the wealth of the Lord family through the fact that the newspaper and news reporter were especially interested by the second wedding of Lord’s daughter. Undoubtedly, the Lord family is wealthy, according to the location,

The top floor of the building was made up of a number of small rooms. They had all previously been the offices of the companies top executives, although none had been used to house office equipment for some time. More recently the rooms had been converted and become improvised bedrooms.

Numerous occasion creators expect that house occasion rentals are rich and implied for the privileged

An adequate understanding of the American cultural predisposition is required to analyze the actual reasons for the subprime crisis of 2008 and the author, Michael Lewis tries to illustrate this by describing his own personal experience of renting a luxurious mansion in New Orleans in his essay ‘The Mansion: A Subprime Parable’. Although it is true that, the money lending business did facilitate the American desire for unaffordable houses, it cannot be held responsible for it as the author feels that it was the average Americans lust for bigger houses that was truly responsible for this crisis. To illustrate, the author describes his own experience with renting a luxurious mansion which reflects the model of the subprime crisis in general

These agencies used their own statistical models to rate the MBSs. They also rated the CDO entities and underwriters. There was competition between two major rating agencies- Moody’s and S&P. Moody’s was accused of being tough and conservative. It ultimately had to relax its standards in order to get more business. Another major problem with the rating agencies was that they could be influenced by the powerful and influential people who were behind major investment banks and hedge funds. Who’s responsible? A crisis of such magnitude cannot be brought about by the actions of one player. The subprime crisis is a result of the actions/behavior of a number of factors. Who’s to be blamed most is a difficult question to answer. Was it the lenders who gave out mortgage loans to subprime customers at higher rates, or was it the borrowers themselves who borrowed beyond their means and did not actually understand the features of the mortgages. And what about the underwriters and insurers who gave the tranches better ratings through credit enhancement tools. It was these guarantees that made the investors more confident. The Financial System: Thus the economy trusted that the matured markets would govern themselves leading to lose regulation. But as the crisis unfolded, it was quiet evident the markets were not doing what they were supposed to. Everyone, be it the lenders, borrowers, underwriters, insurers or investors, believed that the housing bubble