# Cause of 2008 financial crisis



## Ahavard (Oct 27, 2011)

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?


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## likeabird03 (Oct 27, 2011)

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.


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## Douger (Oct 27, 2011)

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.


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## Douger (Oct 27, 2011)

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]


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## Douger (Oct 27, 2011)

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.


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## likeabird03 (Oct 27, 2011)

Douger said:


> 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.


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## zonly1 (Oct 27, 2011)

Douger said:


> 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.



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.


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## editec (Oct 27, 2011)

Ahavard said:


> 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?


 
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.


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## ibanker (Oct 27, 2011)

Ahavard said:


> 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?



Focusing on a single factor is silly and makes for ineffective analysis.


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## ibanker (Oct 27, 2011)

Douger said:


> 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.



WTF? Don't you mean Clinton and James Johnson's? 

Your history is off.


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## editec (Oct 27, 2011)

Ibanker,

Nice to find still another reality based poster in this place.

People looking for simply answers to complex problems is the mothers' milk of political partisanship.


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## Mad Scientist (Oct 27, 2011)

Banksters popped the Housing Bubble.


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## CrusaderFrank (Oct 27, 2011)

Ahavard said:


> 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?



Fannie & Freddie, FDIC Insurance

Close the thread


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## California Girl (Oct 27, 2011)

Ahavard said:


> 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?



How rude. Joining a forum and expecting the members to do your homework for you.

Fuck off, junior.


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## Metzor (Oct 27, 2011)

Ahavard said:


> 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?


Government intervention.


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## American Horse (Oct 27, 2011)

editec said:


> Ahavard said:
> 
> 
> > 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?
> ...



Isn't it actually the case that the banks were put in a position to do what banks naturally do to comply with the policy being set by government - adapt?


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## editec (Oct 27, 2011)

American Horse said:


> editec said:
> 
> 
> > Ahavard said:
> ...


 
That WOUILD BE TRUE if the banksters weren't so heavily involved in the changes that made this disaster possible, AH

But they were and ARE still controlling Congress.

The environment that they responded to (then) was the environment they LOBBIED TO HAVE IN PLACE..


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## Ahavard (Oct 27, 2011)

I do realize that it isn't one factor that lead to it. I'm asking for your opinion on what you think contributed the greatest.  It isn't a homework question. it's an opinion. don't come on here and criticize me for asking. I just need the survey.


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## kiwiman127 (Oct 27, 2011)

likeabird03 said:


> Douger said:
> 
> 
> > Oh.Before some flag waving, Bush loving asshole chimes in.
> ...



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 it&#8217;s even more ridiculous when you consider that most subprime loans were made by firms that aren&#8217;t 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: &#8220;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.&#8221;_

Community Reinvestment Act had nothing to do with subprime crisis - BusinessWeek

And then there's Glass-Stegall.  The Gramm&#8211;Leach&#8211;Bliley 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.


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## DatpiffNasty (Oct 27, 2011)

Wow, it just so happens that I have to do a similar story man what a coincidence. 
All I know is that in the 70's their was a major push for decentralization of Wall Street.  Since then the major banks and insurance companies began to get involved in really risky business investments.  In 2008 the economy completely fell apart starting with the housing industry.  I still think it is the peoples fault (99%) for being dumb enough to believe that businessmen wouldn't be risky.  Stop bitching and go out and make money the way everyone else did.
AMERCA!!!!!!
                     [They call me Nastayyyyyyyy]


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## william the wie (Oct 27, 2011)

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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## likeabird03 (Oct 27, 2011)

william the wie said:


> 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.



Very true, and the bailouts of the S&L's created a moral hazard.


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## likeabird03 (Oct 27, 2011)

kiwiman127 said:


> likeabird03 said:
> 
> 
> > Douger said:
> ...



I wouldn't say my statement just called out democrats, I understand that it was both parties that are responsible for this mess.


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## JimBowie1958 (Oct 28, 2011)

likeabird03 said:


> 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.
> 
> ...



And all that was amplified by a factor of ten by the use of Mortgage Backed Securities (MBS) and similar financial arrangements like CDO's and SIVs as these instruments poisoned good credit with bad sub-prime credit. 

Then all that was magnified many times over yet again via the losses that had to be paid off in Credit Default Swap contracts (CDS).

All of these derivative contracts amplify profits during the good times, but make downturns into catastrophes in bad times.

We *still* have this going on and the derivatives market globally amounts to nearly $700 TRILLION in notional value.

It is a ticking supernova waiting for the next crisis to push it into oblivion (EU or China or BoA, take your pick).


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