First this link clearly explains how ALL THOUGH 2007 the HOUSING MARKET WAS CRASHING and the ripple effect on bankruptcies and more and how BUSH TRIED TO LESSEN IT AND FEDS STILL ALSO FAILED TO CONTAIN IT. Our mistakes lead to it Worldwide.
2007 Financial Crisis Explanation, Causes, and Timeline
https://www.thebalance.com/2007-fina...erview-3306138
Simple timeline of 07 events. From link.
February 2007: Homes Sales Peak.
- Existing home sales peaked at an annual rate of 5.79 million. Prices had already begun falling in July 2006.
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Even though each month brought more bad news about the housing market, economists couldn’t agree on how dangerous it was.
February 26, 2007: Greenspan Warns of a Recession, But the Fed Ignores It.
- On February 28, Fed Chairman Ben Bernanke’s testified at the House Budget Committee. He reassured markets that the United States would continue to benefit from another year of its Goldilocks economy.
March 6, 2007: Stock Market Rebounds After Worst Week in Years.
- the sudden 8.4% drop in China’s Shanghai index caused a global panic, as investors sought to cover their losses.
- A big cause of sudden market swings is the unknown effects of derivatives.
- These allow speculators to borrow money to buy and sell large amounts of stocks.
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Thanks to these speculators, markets can decline suddenly.
March 2007 - Hedge Funds Housing Losses Spread Subprime Misery.
- the housing slump had spread to the financial services industry. Business Week reported that hedge funds had invested an unknown amount in mortgage-backed securities.
- Unlike mutual funds, the Securities and Exchange Commission didn’t regulate hedge funds.
No one knew how many of the hedge fund investments were tainted with toxic debt.
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Since hedge funds use sophisticated derivatives, the impact of the downturn was magnified.
- Derivatives allowed hedge funds to borrow money to make investments.
- They did this to earn higher returns in a good market. When the market turned south, the derivatives then magnified their losses. In response, the Dow plummeted 2% on Tuesday, the second-largest drop in two years. The drop in stocks added to the subprime lenders miseries.
April 11, 2007 - Fed Ignores Warning Signs, Stock Market Disapproves.
- the Fed was worried more about inflation.
- It ruled out a return to expansionary monetary policy anytime soon. Lower interest rates were needed to spur homeowners into buying homes.
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The housing slump was slowing the U.S. economy.
April 17, 2007: Help for Homeowners Not Enough.
- the Federal Reserve suggested that the federal financial regulatory agencies should encourage lenders to work out loan arrangements, rather than foreclose.
- Fannie Mae and Freddie Mac committed to helping subprime mortgage holders keep their homes. They launched new programs to help homeowners avoid default.
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But these programs didn't help homeowners who were already underwater, and by this time, that was most of them.
April 26, 2007: Durable Goods Orders Forecast Recession.
Why are durable goods orders so important? They represent the orders for big-ticket items.
- Companies will hold off making purchases if they aren't confident in the economy. Even worse, fewer orders mean declining production. That leads to a drop in GDP growth.
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Economists should have paid more attention to this aspect of this critical leading indicator.
June 19, 2007: Home Sales Forecast Revised Down.
- The National Association of Realtors forecast home sales would fall to 6.18 million in 2007 and 6.41 million in 2008. That was lower than the 6.48 million sold in 2006.
August 2007: Fed Lowers Rate to 4.75%.
- This reduction was a bold move since the Fed prefers to adjust the rate by a quarter-point at a time. It signaled an about-face in the Fed’s policy.
- The Fed lowered the rate two more times until it reached 4.25% in December 2007.
- Banks had stopped lending to each other because they were afraid of being caught with bad subprime mortgages.
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The Federal Reserve believed lower rates would be enough to restore liquidity and confidence.
September 2007: Libor Rate Unexpectedly Diverges.
- the Fed had begun extraordinary measures to prop up banks.
- They were starting to cut back on lending to each other because they were afraid to get stuck with subprime mortgages as collateral.
- As a result, the lending rate was rising for short-term loans.
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The divergence of the historical LIBOR rate from the fed funds rate signaled the coming economic crisis.
October 22, 2007: Kroszner Warned Crisis Not Over.
- Kroszner predicted that the collateralized debt obligation (CDO) markets would never return to health.
- He saw that investors couldn’t ascertain the price of these complicated financial products.
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Everyone realized that these complicated derivatives, which even the experts had trouble understanding, could critically damage the country's finances.
November 21, 2007: Treasury Creates $75 Billion Superfund.
- The U.S. Treasury backed the superfund to ward off further economic decline.
The goal was to give the banks enough time to figure out how to value these derivatives.
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Banks would be guaranteed by the federal government to take on more subprime debt.
December 12, 2007: Fed Announces TAF.
- Lowering the fed funds rate wasn't enough to restore bank confidence.
- Banks were afraid to lend to each other. No one wanted to get caught with bad debt on their books at the end of 2007.
- To keep liquidity in the financial markets, the Fed created an innovative new tool, the Term Auction Facility (TAF). It supplied short-term credit to banks with sub-prime mortgages.
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If the banks had defaulted, taxpayers would have had to foot the bill as they did with the Savings and Loan Crisis.
- It would have signaled that the financial markets could no longer function. To prevent this, the Fed continued the auction program throughout March 8, 2010.
- TAF gave banks a chance to unwind their toxic debt gradually. It also gave some, like Citibank and Morgan Stanley, a chance to find additional funds.
Dec 2007 - Foreclosure Rates Doubled.
- The housing bust caused a stock market correction. Many warned that, if the housing bust continued into spring 2008, the correction could turn into a bear market, and the economy could suffer a recession.
2008 Financial Crisis Timeline.
- The crisis in banking got worse in 2008.
- Banks that were highly exposed to mortgage-backed securities soon found no one would lend to them at all.
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Despite efforts by the Fed and the Bush Administration to prop them up, some failed.
- The government barely kept one step ahead of a complete financial collapse.
There we go. THE COLLAPSE WAS AT HAND FOR 2008 A PERFECT STORM....
**** Again, REMEMBER that PRESIDENT OBAMA WAS NOT SWORN IN AS PRESIDENT TILL JAN 2009..
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LEARN HISTORY AND HOW EVENTS ALL LEAD TO THE CRASH.------
You do know that Trump took office 8 years AFTER THE CRASH RIGHT???
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