 |
|
Add to My Group
|
October 23, 2008 at 12:07:25
They Did It on Purpose: The Housing Bubble and Its Crash by Richard C. Cook Page 1 of 2 page(s) |
|
|
1
1
1
During the Clinton administration, the government required the financial industry to start expanding the frequency of mortgage loans to consumers who might not have qualified in the past. When George W. Bush was named president by the Supreme Court in December 2000, the stock market had begun to decline with the bursting of the dot.com bubble. In 2001 the frequency of White House visits by Alan Greenspan increased. Greenspan endorsed President Bush's March 2001 tax cuts for the rich. More such cuts took place in May 2003.
Signs of recession had begun to show in early 2001. The stock market crashed after 9/11. The U.S. invaded Afghanistan in October 2001 and Iraq in March 2003.
The Federal Reserve began cutting interest rates, and by 2002 a home-buying frenzy was underway. Fannie Mae and Freddie Mac went along by guaranteeing the increasing number of mortgage loans.
According to a mortgage broker this writer interviewed, word began to come down through the mortgage banks to begin falsifying mortgage applications to show more borrower income than borrowers actually possessed
Banks that wrote mortgages began to offload them when Wall Street packaged them into mortgage-backed securities that were sold around the world as bonds to investors.
Risk-analysts at the leading credit-rating agencies, such as Standard and Poor's, Moody's, and Fitch, gave their highest ratings to mortgage-backed securities whose risks were later acknowledged to be grossly underestimated.
Mortgage companies, with Alan Greenspan's endorsement, began to offer more Adjustable Rate Mortgages (ARMs), loans that would reset at much higher rates in future years.
Mortgage brokers fed the growing bubble by telling people they should buy now because housing prices would keep going up and they could resell at a profit before their ARMs escalated.
Huge amounts of money began to flow into the economy from mortgages and home equity loans and from capital gains on resale of inflating property.
Meanwhile, in the world of investment securities, the Securities and Exchange Commission greatly reduced the amount of their own capital investors were required to bring to the table, resulting in a huge increase in bank leveraging of speculative trading.
George W. Bush was reelected in 2004 at the height of the housing and investment bubbles. By 2005 the housing bubble was accounting for half of all U.S. economic growth and yielding huge tax revenues to all levels of government.
Despite the tax revenues from the bubbles the Bush administration was running huge budget deficits from expenditures on the wars in Afghanistan and Iraq.
ABC News reports that during this time risk analysts at Washington Mutual, one of the nation's largest banks, were told to ignore high risk loans because lending had to be maximized. Those who objected were disciplined or fired.
1 | 2
http://www.richardccook.com
The views expressed in this article are the sole responsibility of the author
and do not necessarily reflect those of this website or its editors.
 Contact Author |
Contact Editor |
 View Authors' Articles |
|
| 4 comments |
|
Are there steady hands/heads at the tiller?
Political parties or advisers ae not what I ask about. Rather, who among economists and political philosophers have a grasp of global commerce and politics? by Margaret Bassett (45 articles, 2919 quicklinks, 43 diaries, 1870 comments [100 recommended, 0 rejected]) on Thursday, Oct 23, 2008 at 12:12:01 PM  (0+)
|
|
They Did it in Purpose
N.S.S. Of course, THEY did it on purpose. And who was watching the watch dogs? Just don't say Nader didn't try to warn people. by Matoska (22 articles, 1 quicklinks, 1 diaries, 33 comments) on Thursday, Oct 23, 2008 at 5:31:48 PM (0+)
|
|
Great article, but you overlooked a couple of key factors.
ARMs were pushed with the promise that the homeowner could refinance in a couple of years when it had adjusted up to the level of the fixed rate loans, and by refinancing every couple of years, the borrower could finance for less than fixed rates. Of course, this is something that most with an education in business would understand is based upon assumptions that may not hold true. However, the average consumer believed what far too many unethical mortgage professionals told them. To make matters worse, our government passed legislation limiting sub-prime loans. For more details, see Senate Bailout a.k.a. Bank Robbery Bill and If I were a Terrorist by Mark Adams (21 articles, 0 quicklinks, 0 diaries, 317 comments [43 recommended, 0 rejected]) on Thursday, Oct 23, 2008 at 6:06:03 PM (0+)
|
|
Excellent Comments
The writer has listed most of the major failures of our governing agencies and politicians. It goes all the way back to Reagan. Although they "did it on purpose" the real underlying problem is the oligarchical society that the wealthy wanted to (and did) create by destroying the working class. Ony a few corporations will benefit and the rest who thought they were along for a good ride are now firing employees, losing years worth of profits and generally realizing they were also duped. Too bad we left our government in the hands of crooks so long. Pelosi should have allowed impeachment to go forward. She is an enabler and should be prosecuted with the rest, if we are ever so lucky to see the day when justice is served. by jeff rock (10 articles, 1 quicklinks, 8 diaries, 187 comments [68 recommended, 0 rejected]) on Thursday, Oct 23, 2008 at 10:01:38 PM (0+)
|
Want to post your own comment on this Article? 
|
||||
|
||||||||||||||
Well Said (0) 
News (0) 
Touching (0) 
Funny (0) 
Interesting (0) 
Inspiring (0)
|
|
|
|
|
|
|
|
|
Tell a Friend:
|
Copyright © 2002-2009, OpEdNews |
