william the wie
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- Nov 18, 2009
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Wrong question. The housing bubble of 1994-2006 took off the second the clean up on the earlier S&L housing crisis allowed. Dig into that you can find an answer.
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Wrong question. The housing bubble of 1994-2006 took off the second the clean up on the earlier S&L housing crisis allowed. Dig into that you can find an answer.
Oh.Before some flag waving, Bush loving asshole chimes in.
Home Ownership and President Bush - YouTube
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.
Well, that certainly points at one party, doesn't it?
BUT,,,,,,
"The Community Reinvestment Act, passed in 1977, requires banks to lend in the low-income neighborhoods where they take deposits. Just the idea that a lending crisis created from 2004 to 2007 was caused by a 1977 law is silly. But its even more ridiculous when you consider that most subprime loans were made by firms that arent subject to the CRA. University of Michigan law professor Michael Barr testified back in February before the House Committee on Financial Services that 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision and another 30% were made by affiliates of banks or thrifts which are not subject to routine supervision or examinations. As former Fed Governor Ned Gramlich said in an August, 2007, speech shortly before he passed away: In the subprime market where we badly need supervision, a majority of loans are made with very little supervision. It is like a city with a murder law, but no cops on the beat.
Community Reinvestment Act had nothing to do with subprime crisis - BusinessWeek
And then there's Glass-Stegall. The GrammLeachBliley Act to repeal part of Glass-Stegall was written by three Republicans and passed over-whelming in a bi-partisan vote, then signed into law by Clinton.
I'm not going to argue about Barney Frank/Chris Dodd or home ownership being part of the 2004 GOP Platform.
Bottomline, it was both parties, the Fed and the banks who got us into this mess.
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.