20 thoughts on “The 2008 Financial Crisis: Crash Course Economics #12

  1. The BIG question is : Who approved lowering government regulated lending guidelines ? CLUE: It happened during the Clinton Presidency.

  2. Most borrowers for home loans never had good credit and still don't today.
    Banks were giving loans to people in the 90s with no job.

    And this 2000 banking problems and housing bubble. Is the same that happened in the 1980s.

  3. I have a feeling that something much worse is right around the corner, worse than Great Depression and 2008 Financial Crisis.

  4. People… the great recession was not the fault of banks, the government caused it. Misguided affirmative action-type government policy lead to the crisis.

    Ask this: why were banks lending subprime mortgages?

    Here's why:

    Back in the 1980s and 1990s the political discourse was a lot about the fact that, for the inner city and ethnic minority groups:
    1. mortgage origination rate was the lowest
    2. the mortgage denial rate was the highest

    Research by academics during the period concluded that the reason behind this was racism and discrimination.

    The financial sector explained that these groups had:
    1. the lowest credit scores
    2. highest default and delinquency rates
    3. less likely to have life savings
    4. have the highest levels of unemployment.

    …….. as the explanation for that reality.

    The government then started an initiative – I think under the housing and development Act probably – to use a sort of affirmative action to help those Americans have the American dream of owning a home.

    Fannie Mae and Freddie Mac were set up way before to provide liquidity in the housing market and were meant to compete with each other to improve their efficiency.

    These government sponsored entities were mandated to make the dream happen in the government's plan.

    How?

    Banks were asked to provide mortgages to these subprime borrowers. The plan was that these loans would then be secularized and sold off to Fannie and Freddie.

    The whole scheme was backed by the US government's guarantee.

    This then caused the banks to start lending mortgages like there was no tomorrow.

    During this time period, regulations (glass-Steagal) preventing banks holding derivatives on their balance sheets were rolled back.

    This opened the door for wall street to get in on the action. The financial industry from wall street to London invested in these mortgage-backed securities.

    Why?

    THEY WERE GUARANTEED BY THE US GOVERNMENT…..!!!!!!!

    This is why they all got tipple A ratings, these assets were as good as gold due to the US government guarantee.

    The thing spread like wildfire throughout the world… after all, the US is the global safe haven for investment, as an added bonus the US government backs the underlying assets to these securities.

    China is said to have lost 5 times as much as American banks during the crisis.

    Here's the thing, the HUD did not have regulatory oversight of Fannie and Freddie and its head went to Congress to complain and warn about the dangers inherent to what was happening.

    … that video is now missing from YouTube

    The man was berated for attacking a system that was working. They just stopped short of calling him a racist.

    Here's where it climaxed, when the resulting bubble burst in 2007/8, the government was MIA on their guarantee. They then shifted blame to the banks and their greed. Bailed out some that were too integrated into the global system for them to fail and not destroy the western way of life.

    The narrative was set, nothing of the seminal role of government policy was ever mentioned in any of the coverage.

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