In the previous post, Josh asked what was wrong with equilibrium, and Matt pointed out that people don’t have to buy homes, they need a place to live. If you look at the post below, you will notice a couple of things about the normalized cost of rent. First, it did not spike like the home costs from 1980 to 2006. Furthermore, it seemed to track very closely with the shape of the wage curve. Suggesting that the necessity, the thing really tied to demand, moved with wages.
So, people encouraged by government policies and initiatives from lenders bought homes they could not afford. First the people, then the lenders, got into big trouble.
Who should we take care of? Who is more culpable? While working for the Arizona Supreme Court we considered cases applying lemon laws to leased cars. The decisions assume that the one who signed the lease knew what he or she was doing, and should bear the consequences of his or her actions.
I analyze this crisis from the perspective of power. Who has the power in these cases? The borrower nominally is empowered to say ‘no’. But I suggest, it is the lenders and their allies in government who hold the real power to push on the system.
Okay, let me have it.