Explain the Mortgage and Finance Crisis to me?
More specifically, in terms of housing.
And... What is the government doing about it and/or what should they be doing about it?
- DocLv 71 decade agoBest Answer
Throughout the 1970s and 1980s, there was a cry for more "affordable housing." Pressure was put on Congress to devise a plan. A Republican lead Congress during the Clinton years answered the call of the finance institutions and put forth a bill raising interest rates allowably charged by law from 21% to 30%. This cleared the way for the finance institutions to offer up 0% interest credit cards as well as Variable Interest Rate mortgage loans that had in them, a balloon payment. Clinton signed off on this as being a good thing. Suddenly, people who would not otherwise qualify for a mortgage, qualified. Mr. Clinton also signed another Republican lead congressional bill: NAFTA, allowing corporations to circumvent having to pay princely sums to labor unions for substandard work. Instead, they were suddenly allowed to send their labor needs over seas to markets that are un regulated with no minimum wage standard. This was good for business, but bad for the laborer and bad ultimately for the consumer because instead of passing off a bit of the savings to the consumer, the heads of companies instead, gave themselves huge bonus's and called it all profit.
Jobs didn't just automatically leave the country immediately after the bill was signed, it took time much like a slow leak in a dam. Soon, a great many businesses would find themselves in financial straights. The cost of their product too high, and the unemployed unable to pay their debt obligations.
Again, under a Republican lead Congress, the lobbyists for those same financial institutions, seeing what was about to unfold, went back to Congress and got them to float a bill changing the laws governing who qualifies for bankruptcy. This one, the new president (Bush 43) signed off on. Congress went back to its Business as Usual mindset and for got about it. The poeple voted in a new Congress, this one lead by Democrats who'd promised change. They changed little to nothing and while the people slept, unemployment began to spike as did the debt to income ratio of a great many people. Still Congress did nothing.
Having failed to study history, the current plan is to bail out those who are responsible for all of this, all the while, taking the country deeper and deeper into debt.
The people who signed up for those mortgage loans should have known they could not afford them. They were however, reassured by the lenders that they could indeed afford the loan. They were after all, the experts.
There is a reason those people could not afford those homes. It begins with a lack of education. Affordable is subjective. What's affordable to some is not to everyone.
- 4 years ago
It all goes back to about 2003, when interest rates got exceedingly low. The low mortgage rates made it very affordable to get a mortgage on a home. This caused a lot of upward demand for houses. Increase in demand led to a dramatic increase in prices... speculation ensued, a bubble was created. People were too focused on their monthly payment amounts, and not what they were paying for houses. Inflationary pressures pushed interest rates up to slow the price increases. Housing demand began to wane as higher mortgage rates made it less affordable, home prices began to fall rapidly, and severely. Soon many people's mortgage amounts where well above what they could sell their homes for. Now the banks, and other mortgage backed securities in the financial system (to the tunes of Trillions of dollars worth) had less collaterial (the market value of a home) than the mortgage loan. The value of mortgage backed bonds tanked, as no one knows what the potential losses on them will be. Financial firms were forced to write off Billions, some went under, or were forced to sell out. Banks, and other lends, deperate for cash stopped lending. Companies & businesses found it expensive or impossible to raise cash to operate. Home buyers can't get mortgages to buy any of the huge supply of homes for sales. The economy slowed. layoffs begin, economy weakens further, creating more layoffs, more foreclosures & more losses in the system. The height hit when Lehman Brothers was allowed to fail & other companies had to eat Billions in losses on Lehman paper (debt). A domino chain reaction almost occurs. The government acquires a 79.9% stake & lends $105 Billion to insurer AIG at 10% to keep them from doing the same as Lehman. The Treasury injects $100 of Billions more in the form of preffered stock, in new capital to healthier banks. They give capital to those banks that they believe will survive this crisis but would meander along for years while healing their books. By injecting the capital, the govt hopes to speed this process along so the banks get back to lending out money again so the economy can function & grow.
- Anonymous1 decade ago
Banks and lending institutions came up with the brilliant idea of "variable rate" mortgages. They wanted to make the most possible loans for their bottom line profits.
They talked people into the mortgages, people who didn't make a lot of money, but were probably able at the time to make the payments.
Taxes have gone up, sometimes property taxes going up more than 400% in one year for some, the prime lending rates went up, fuel and food costs went up, and other taxes went up as the government on all levels, federal, state and local are exceedingly greedy and wasteful, always taxing, taxing, taxing and wasting the money giving it to cronies.
Just the war in Iraq has cost probably a couple of trillion dollars, Bush/Cheney's cronies in Haliburton have gotten about $ 100,000,000,000 alone!
So, the people who bought the houses could no longer make the payments.
The banks wouldn't renegotiate, and were left holding the bag with a lot of foreclosures. (too bad!)
The banks could afford, even though they weren't making money, to pay CEO's multi-million-dollar salaries, and their top execs bonuses, yet they want public money to bail them out!
Failed fatcat execs who drive their own companies into the ground want to be paid, even though they are incompetent!
The government wants to help them, but doesn't want to help the homeowners who are actually losing and have lost their homes.
The American government doesn't care about the average American citizens, except as a source of money for them to give to cronies, to squander and waste in just about any way imaginable, except anything that would benefit average Americans.
The fatcats must be kept in their mansions and multimillion-dollar salaries at all costs. The ones losing their houses are just out of luck.
As long as the government can waste the taxpayers' money they don't care about anything else.
- Anonymous1 decade ago
This question should be asked in the category of 'Education & Reference' and in the subcategory of 'Homework Help'. It belongs there.