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Blindsided by Jonathan Gifford

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Originate and Sell

As a result of all of this unsound lending, house prices boomed. Between 1999 and 2005, house prices in the US rose by 42%, and the house price-to-income ratio rose from 3.72% to 5.29%, the highest level since records began, in 1991.11

The level of lending, as we noted earlier, was driven far beyond what would normally be possible by the fact that lenders were not reliant on their own capital. In what I think we are now allowed to call the ‘good old days’ of mortgage lending, funds dried up when lenders had used up all of their available capital. This had the happy effect of causing the lenders to ration their precious capital by careful lending. But now lenders had a new option: to pass on their debt to other investors (in ...

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