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The so-called Real Estate Bubble was a product of the recession, not the cause.
The Bubble burst only because of massive numbers of defaults on mortgages.
The reason for the massive numbers of defaults on mortgages was a decline in household income.
The cause of the decline in household income was massive job losses. Even when those who lost jobs were able to find new employment, it was often at a lower wage/salary.
The cause of the massive job losses was a shift of Capital from the US to Southeast Asia, and in particular, to China. Manufacturing plants in the US were closing, and reopening elsewhere outside of the US.
The job losses were accelerated by the increase in the federal minimum wage as a result of the Fair Minimum Wage Act of 2007, enacted by Congress and signed into law by President Bush.
If Capital is not shifted to Southeast Asia, then no jobs are lost and household income does not decline, which results in people keeping up with their mortgage payments and the so-called Real Estate Bubble never bursts.
Yes, mortgage defaults increased because manufacturing jobs went to other countries, but the lack of
derivative regulation caused the effects to be greatly increased.
The so-called Real Estate Bubble was a product of the recession, not the cause.
The Bubble burst only because of massive numbers of defaults on mortgages.
The reason for the massive numbers of defaults on mortgages was a decline in household income.
The cause of the decline in household income was massive job losses. Even when those who lost jobs were able to find new employment, it was often at a lower wage/salary.
The cause of the massive job losses was a shift of Capital from the US to Southeast Asia, and in particular, to China. Manufacturing plants in the US were closing, and reopening elsewhere outside of the US.
The job losses were accelerated by the increase in the federal minimum wage as a result of the Fair Minimum Wage Act of 2007, enacted by Congress and signed into law by President Bush.
If Capital is not shifted to Southeast Asia, then no jobs are lost and household income does not decline, which results in people keeping up with their mortgage payments and the so-called Real Estate Bubble never bursts.
The reason for the massive defaults was a bunch of good people who are bad with money were given loans they never qualified for in the past. A bad risk will default sooner or later. Not until standards were lowered were those type of loans made available. When you lower standrds quality and efficiency suffer.
The mortgage industry, as a whole, never made that many little to no down payment loans before. Even with good credit, those loans are a bad risk.
thirteen times after bush was elected, he tried to rein in fannie mae and freddie mac, but the democrats were not having any of it as barney frank and chris dodd both claimed there was nothing wrong with those companies.
Dubya went along to go along. he made a speech in Georgetown to a group of minority business owners or politicians talking about increasing home ownership. In his 2004 acceptance speech at the RNC he said the goal was to increase home ownership.
"Another priority for a new term is to build an ownership society, because ownership brings security and dignity and independence.
Thanks to our policies, home ownership in America is at an all- time high.
Tonight we set a new goal: 7 million more affordable homes in the next 10 years, so more American families will be able to open the door and say, "Welcome to my home."
They happen because of government manipulating the economy.
Bingo! And the housing bubble, burst, and subsequent 2008 financial crisis (which was actually a credit crisis) was the result.
I've posted this many times on city-data. The vast majority of people have NO clue what actually happened, and that we're STILL suffering the consequences...
Always follow the money...
The cause was the Fed Gov forcing lenders to give mortgages to people who never should have qualified, and then forcing Fannie and Freddie to buy the mortgages, securitize them, and sell them as investments (MBS) to foreign governments and worldwide financial institutions and investors. The Federal Reserve then had to buy $2 trillion worth of those Fannie and Freddie MBS to prevent the credit crisis from precipitating a full-blown global crash. But they did so with CREATED money. QE. Not money that actually existed. And it can never be reversed, still having a $1.76 trillion outstanding debt obligation 10 years later.
They'll roll off as they mature, paid or not. Meanwhile, the US$ was devalued by that $2 trillion in QE that can't be reined back in.
Proof that $2 trillion in QE was created to bail out Fannie and Freddie. The Federal Reserve STILL has $1.77 trillion worth of Fannie and Freddie MBS on its H.4.1.
Anything besides focusing on bad loans would be a symptom. After the fact. One could make the argument that it made things worse, but it wasn't the cause. It wasn't the root of the problem.
The loans were a bad risk since standards were lowered in order to get loans to those who didn't normally qualify. When you lower standards, quality and efficiency suffer. A basic economic premise that was violated.
Easy lending once again led to our demise.
The question is why was there money for bad loans?
The answer is that the investment banks thought they had found away to make money off of bad loans without incurring substantial risk via CDOs. Therefore they were willing buyers of bad loans, which therefore generated additional funding for new bad loans. It got so hot that investment banks started buying subprime lenders because they couldn't get enough loans to securitize.
In the investment bank's perverse logic subprime loans were better than prime loans because subprime loans came with extra fees and higher interest rates that would provide additional income streams which make the CDO even more attractive.
Look at triple A rated CDO cubed products which were made up of the risky tiers of CDO squared which themselves were made up the risky tiers of a CDO. A triple A rated product made of the worst of the worst and yet the investment banks could sell them as triple A. Of course there was money for bad loans.
The reason for the massive defaults was a bunch of good people who are bad with money were given loans they never qualified for in the past. A bad risk will default sooner or later. Not until standards were lowered were those type of loans made available. When you lower standards quality and efficiency suffer.
Exactly!
I just explained what happened. Note the $2 trillion Fannie/Freddie QE bailout. And here's Cuomo's HUD (pre-Bush) announcement setting the stage:
Quote:
"Housing and Urban Development Secretary Andrew Cuomo today announced a policy to require the nation's two largest housing finance companies to buy $2.4 trillion in mortgages over the next 10 years to provide affordable housing for about 28.1 million low- and moderate-income families."
mircea is right, and wrong. the real estate bubble was building for quite some time, since the mid 90s in fact when sub prime mortgages really got going. in the late 90s they added interest only loan payment plans, that had a balloon payment of the unpaid principle over a ten year period.
at the time people were big into flipping houses to make money, and it worked for a while.
thirteen times after bush was elected, he tried to rein in fannie mae and freddie mac, but the democrats were not having any of it as barney frank and chris dodd both claimed there was nothing wrong with those companies.
at the same time, the big banks were buying and selling bundled mortgages to make money, as well as getting into investment banking as well. these two efforts over extended the banks assets. the trigger though was rising oil prices when a few companies tried to corner the market on crude oil, in part to drive another company out of business. these fuel surcharges, and rising as prices added costs to an already over stressed economy, and when the credit markets seized up, people needed money, so they cashed in their stocks and bonds, causing the markets to virtually collapse.
in the end i dont just blame the democrats, since they could have headed off the problem in 2007, i also blame republicans for pushing to repeal glass-steagle, and clinton for going along with it. it was bad for the country then and still bad now. and dodd/frank didnt even scratch the problem, in fact it kind of made things worse by harming the small banks.
Very good.
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