Cause of 2008 financial crisis

Discussion in 'Stock Market' started by Ahavard, Oct 27, 2011.

  1. Ahavard
    Offline

    Ahavard Rookie

    Joined:
    Oct 27, 2011
    Messages:
    3
    Thanks Received:
    0
    Trophy Points:
    1
    Ratings:
    +0
    Ok everybody, I'm conducting a survey for a class I'm taking about politics and radical groups. In your opinion, what was the leading contributing factor to the 2008 financial crisis?
     
  2. likeabird03
    Offline

    likeabird03 Active Member

    Joined:
    Oct 10, 2011
    Messages:
    413
    Thanks Received:
    60
    Trophy Points:
    28
    Location:
    Sacramento
    Ratings:
    +60
    I'm going to take you all the way back -

    In the two decades that proceeded the financial crises income growth for most Americans slowed considerably. This was due to many factors which I will briefly outline - A)The decline of unions B)Various free trade agreements as well as the progression of globalization hollowed out our manufacturing base which was partially offset by an increase in low paying service jobs. Regulators however, in an environment where real wages were stagnating still had a responsibility to try and keep aggregate consumer spending, and the economy growing. In order to keep the spending growing in an environment where wages were not rising they lowered interest rates to the point where the growth in credit took over what wage growth would have done in the past. Put simply, Americans were becoming more and more dependent on credit in order to increase or even sustain their standard of living.

    With much of our real wealth transferring overseas to places like South East Asia and the Middle East in the form of our 50 billion per month trade deficit, all of a sudden these regions had an unprecedented increase in wealth. What did many do with this wealth? They invested it in America, in the form of T-Bills, and mortgage backed securities, this satisfied much of our increased appetite of credit.

    The high tech boom of the late 1990's masked much of this and we were under the illusion that we had the best economy ever. However when this boom came to an end we were left with the reality. So the feds ratcheted up the stimulus even more and lowered interest rates to only 1% by Summer 2003, this was the lowest level in more than 40 years. This accelerated the process, our appetite for credit grew faster and faster. Before you knew it though, most people who legitimately qualified for homes already had one as home ownership rates were at record highs. By 2005, with home prices at record levels, and with only subprime borrowers left, lending standards were relaxed significantly. This was done due to a variety of reasons but one large reason was: Fannie Mae (a govt institution) put a lot of pressure on banks to continue lending at a high level in order to satisfy the markets appetite for mortgage backed Tsecurities being funneled through Fannie Mae. They did this for a few reasons 1)To increase home ownership rates even further.2) To conform to the fair housing acts of the proceeding decades. 3) Keep the housing market going since by that time it had become the main engine of economic growth in our economy. In order to get people to be able to qualify for those mortgages however they needed to also be tweaked. Lenders moved away from the traditional 30 year fixed mortgages to more exotic loans. These loans included ones where rates were fixed artificially low for 3 to 5 years. During that time period lenders often were paying only interest or below interest resulting in what's called negative amortization where the principal balance would actually increase during this time. We were under the impression at first that this was okay because housing prices would ALWAYS go up and cheap credit would ALWAYS be available, so home owners would be able to sell their homes at a hefty profit or refinance their loans before the rates reset with little trouble. By late 2006/early 2007 default rates on these exotic mortgages became very high, and by the time July came around the bottom fell out of the subprime mortgage market. The companies that packaged these loans up and sold them to investors started experiencing significant financial trouble later that year as those loan portfolios started losing value. First it was Bear Stearns that went bankrupt in 2008, followed Lehman Brothers that September which was among the 5th largest investment houses in the US. As home prices declined and more and more loans went bad the credit markets froze up. There was a panic and no one was lending money. This is what caused the financial crises of 2008.

    So to summarize, there really wasn't one leading contributing factor, it was more of a perfect storm. If I had to pick one I would say government manipulating the mortgage and housing market.
     
    • Thank You! Thank You! x 2
    Last edited: Oct 27, 2011
  3. Douger
    Offline

    Douger BANNED

    Joined:
    Jun 25, 2009
    Messages:
    12,323
    Thanks Received:
    915
    Trophy Points:
    0
    Location:
    Not fucking there !
    Ratings:
    +915
    Bush and Greenspans plan for "everyone to be able to live the murkin dream"
    Many of you did.It was a dream all right. Nightmare.
     
  4. Douger
    Offline

    Douger BANNED

    Joined:
    Jun 25, 2009
    Messages:
    12,323
    Thanks Received:
    915
    Trophy Points:
    0
    Location:
    Not fucking there !
    Ratings:
    +915
    Oh.Before some flag waving, Bush loving asshole chimes in.

    [ame=http://www.youtube.com/watch?v=kNqQx7sjoS8]Home Ownership and President Bush - YouTube[/ame]
     
  5. Douger
    Offline

    Douger BANNED

    Joined:
    Jun 25, 2009
    Messages:
    12,323
    Thanks Received:
    915
    Trophy Points:
    0
    Location:
    Not fucking there !
    Ratings:
    +915
    Hey. Success ! They got the prices down far enough that furrnerz can get a really nice house and a US I'd for $500K. Gawd Blass murka !
    You voted for it.
     
  6. likeabird03
    Offline

    likeabird03 Active Member

    Joined:
    Oct 10, 2011
    Messages:
    413
    Thanks Received:
    60
    Trophy Points:
    28
    Location:
    Sacramento
    Ratings:
    +60
    So bush made a speech. What about Glass Stegall, Berney Frank, Community Reinvestment act? By 2002 we were already three quarters of the way into what caused this housing mess.
     
    Last edited: Oct 27, 2011
  7. zonly1
    Offline

    zonly1 Probie still throwin'em

    Joined:
    Jun 6, 2010
    Messages:
    1,255
    Thanks Received:
    149
    Trophy Points:
    48
    Location:
    on the map
    Ratings:
    +150
    Where's your vid on Frank & Dud lying to the American people about freddie/fannie..

    Where's your vid on CRA created by leftnut nazis in Carter and Clintool?

    It's amazing after the housing bubble that the CRA plaquer is still hanging in banks today..yet you can't learn the lesson as if money grows on trees.
     
  8. editec
    Offline

    editec Mr. Forgot-it-All

    Joined:
    Jun 5, 2008
    Messages:
    41,427
    Thanks Received:
    5,598
    Trophy Points:
    48
    Location:
    Maine
    Ratings:
    +5,618
    The LEADING contributing factor is NOT the ONLY factor leading to this mess.

    You realize that, right?

    It took a lot of different factors to set us up for this economic mess.

    But once conditions were right (once regulations were changed, once the laws changed to allow banks to do whatever they wanted to do) THEN the banks lending money to people unqualitifed to borrow it, was the PRIMARY CAUSE of the mess.
     
  9. ibanker
    Offline

    ibanker Rookie

    Joined:
    Oct 27, 2011
    Messages:
    9
    Thanks Received:
    2
    Trophy Points:
    1
    Ratings:
    +2
    Focusing on a single factor is silly and makes for ineffective analysis.
     
    • Thank You! Thank You! x 1
  10. ibanker
    Offline

    ibanker Rookie

    Joined:
    Oct 27, 2011
    Messages:
    9
    Thanks Received:
    2
    Trophy Points:
    1
    Ratings:
    +2
    WTF? Don't you mean Clinton and James Johnson's?

    Your history is off.
     

Share This Page

Search tags for this page

what factors lead to the 2008 economic crisis in the us