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There were a lot of factors. Wall street bankers buying the sub-prime mortgage crap for their own accounts (foolish) or selling it to their customers (dishonest and unethical), use of complex "derivatives" that nobody understood, quasi-governmental entities like Fannie and Freddie buying the toxic crap, government policies that encouraged home ownership for people that simply couldn't afford it, predatory lenders that took advantage of this, and even John and Jane Citizen taking out home equity loans to speculate in the housing market further stoking the bubble. Plenty of blame to go around.
lmao..What a stooopid post. You need to go back and research what really happened. The GWB admin warned the Democrats that there was a bubble and that THEIR policies were creating it and it won't end up well. They poopoo'd the warnings and SURPRISE!
That's ridiculous. The Democrats did not bundle toxic mortgages into opaque derivatives, push them onto institutional investors and contaminate the entire global financial system. The Great Recession was 30 years in the making and comprised both Republican and Democrat involvement. It was a once in a century credit event.
I wish people would quit starting threads on some obscure argument they read somewhere and then I wish the mods would quit dumping everything that doesn't fit elsewhere here.
I worked in real estate at the time ans still do and what I saw was that the banks over extended themselves when they started making loans to people that could not afford them.
There were loans/scams that had people putting no money down, stated income loans and others with balloon interest rates that started low and went up and up.
The push was on by the banks as prices went up to get people into houses even if they couldn't afford them.
I think the banks knew this and Bank of America was the worse. I had one short sale that took nearly a year to settle and days before the closing the bank foreclosed. My seller had been swept up in the excitement and her interest rates had doubled. The buyer had jumped through the hoops the bank demanded and both the seller and buyer lost out.
The house eventually sold at auction for nearly $60,000 less then I had negotiated. Part of the reason why the bank foreclosed was that it had taken out an insurance policy guarding against the owner unable to make the payments.
What a racket. The bank loans money to someone that is a risk, they put up the interest rate that nearly doubled the monthly payment which forced the owner into a short sale/ foreclosure situation, the bank cashes in on its insurance policy, gets the house back and resells it.
The recession happened due to greedy people in the banking industry that gave loans to people that would have otherwise have never qualified for.
Since then I have seen the banks lower their standards inch by inch but I hope for the countries sake that they remember the lesson from the great recession.
If one insists on blaming the housing bubble on one specific, it goes to the independent bond credit rating corporations, S&P, Moody’s and Fitch. All testified before Congress that “ computer glitches” caused them to assign investment grade ratings to many private label MBS derivative securities.
As a result, the most conservative investors ( private and public pension plan, retirement plans, insurance companies, global banks and FNMA/ FHLMC) chased the ROI and in effect, bought junk bonds. In doing so, they became the primary source of funding most sub prime mortgages.
Had the independent bond rating corporations accurately assessed the risk, these private label MBS derivatives would not have been rated investment grade and the Big Money would not have invested in them and thus there would have been no source of capital to massively fund sub prime loans and the bubble would have been moderated. ( Regional housing bubbles have been common in the US throughout history).
As the bubble inflated, the masses extracted the equity from their homes and many used it to live beyond their means. This drove the economy for a blip in time. The masses bought new cars, renovated their homes, bought second homes, traded up to larger homes, paid college tuitions, dined out, went on vacation and so on.
When 1, 3 and 5 year ARMs began to reset, many found themselves unable to pay their mortgage and began to default. The more foreclosures and short sales in any given neighborhood impacted everyone’s home values, regardless of homeowner behaviors.
Massive portions of the Midwest have yet to recover. Many markets have been further challenged by a dramatic shift in buying patterns whereby younger buyers are no longer as interested in McMansions and/ or acreage, as they once were.
So in late 2008, as it became clear that the banking industry's deregulation had collapsed the secondary mortgage markets, the primary non-conforming mortgage markets, the financial markets in general, and soon-to-be the economy itself, the banking lobby began an active misinformation campaign about the cause of all this. They decided to push the lie of : "the government forced banks to make bad loans."
Yep. The Right Wing media machine quickly pushed the whole “poor black people caused the collapse by not paying their mortgages” narrative on the gullible public. I know a few people who bought it hook, line, and sinker.
Trump supporters and conservative media are ramping up the narrative that the Great Recession was caused by the Democratic takeover of congress in 2006. I don't understand how anybody who was alive and aware during that era could believe that, but it makes for good fear mongering going into the 2018 congressional elections being that it looks like a blue wave is likely. Plus, we are due for a recession anyways and if one does occur in 2019 or 2020 (more likely than not), Republicans can simply blame congressional Democrats.
However, a quick look back at history will show that by 2006, it was already inevitable. The recession was the result of a financial crisis caused by a housing bubble decades in the making. It perhaps could have been prevented a few years earlier, during the 2001 recession, if the Fed would have raised rates sooner.
You and many others misunderstand the cause of the 2008 debt crisis (that's what it was), which also impacted other countries (explanation to follow).
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.
HUD Secretary Andrew Cuomo (Clinton Admin) announced a $2.4 trillion mandate to Fannie and Freddie to buy loans from high-risk borrowers to expand home ownership. I'll post a link to the press release if anyone wishes, but anyone can easily google it themselves.
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.
Oh, and just for grins... Tens of thousands of mortgage borrowers, if not more, will get their homes for free as this all continues to play out and their mortgage debt just rolls off the Federal Reserves H.4.1, unpaid...
That's ridiculous. The Democrats did not bundle toxic mortgages into opaque derivatives, push them onto institutional investors and contaminate the entire global financial system.
Via Cuomo's (HUD Secretary) announcement regarding the $2.4 trillion commitment, yes, they did. The Federal Reserve STILL has $1.76 trillion worth of that garbage on their H.4.1. Read my prior post.
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