Survey says: 60% of Americans are stupid

The Wall Street Journalreports (subscription required) on the results of a new ING Group survey: "More than 40% of Americans believe mortgages that let borrowers buy a home with little or no money down helped contribute to the economic downturn."

That's great that 40% of Americans aren't completely stupid -- but what about the other 60%? I'm dreadfully curious as to what possible argument could be made that record lows in down payments weren't a major contributor to the housing and mortgage bust that ultimately led to the near-collapse of the financial system.

First, low down-payment requirements allowed people to buy houses they couldn't afford, with little "skin in the game." This helped drive home prices into a speculative bubble and made it perfectly rational for people to walk when their homes declined in value: When you have no equity in it, why stay?

Worse, the high loan-to-value ratios caused by down-payments of 0% and sometimes even less made banks' losses on foreclosures higher than they would be in a more conservatively-financed situation. If a home buyer puts down 20%, he "eats" the first 20% in losses on the house. These 0% down-payments left banks with massive losses in the event of a decline in real estate prices -- and that led to huge write-downs, a freeze in lending and a slowdown in consumer spending -- in other words, the economic downturn.

Anyone who says that the escalating percentage of little or no money down didn't help contribute to the economic downturn is terrifyingly ignorant -- and this crisis will repeat itself again unless people brush up on what happened.
Read Full Story


DJIA 25,558.73 396.32 1.57%
NASDAQ 7,806.52 32.41 0.42%
NIKKEI 225 22,277.32 85.28 0.38%
HANG SENG 27,100.06 -223.53 -0.82%
DAX 12,237.17 74.16 0.61%
USD (per EUR) 1.14 0.00 0.03%
USD (per CHF) 1.00 0.00 0.00%
JPY (per USD) 110.89 -0.11 -0.10%
GBP (per USD) 1.27 0.00 0.04%