Yahoo Answers is shutting down on May 4th, 2021 (Eastern Time) and beginning April 20th, 2021 (Eastern Time) the Yahoo Answers website will be in read-only mode. There will be no changes to other Yahoo properties or services, or your Yahoo account. You can find more information about the Yahoo Answers shutdown and how to download your data on this help page.

Help me to better understand why our economy is the way it is?

I'm 16 & I want to better understand why things are so bad in our economy and why people are losing jobs. Here's some things i need a better understanding about How was Fannie Mae & Freddie Mac created & how failings by banks contributes if any to people losing their jobs ? from what i barely understand president carter passed a community reinvestment act that was revised by clinton which basically loosened up the qualifications so that people could get loans for housing and such. I'm kind of lost after that point but these banks were clearly giving too high of loans to people who honestly couldn't afford them right? So why did we have to bail them out is it because people weren't paying back loans & CEO spending? I've heard that Bush wanted to regulate fannie and freddie in i think 2004 but that went nowhere. This is all so complicated to me I guess im just looking for a time line from the banks starting to whats causing families to lose their jobs at this moment ...HELP ME OUT! We barely even discuss these things in school

3 Answers

  • Bill
    Lv 7
    1 decade ago
    Favorite Answer

    It started with corrupt congress members like Barney Frank, Nancy Pelosi and Harry Reid. --The pressure to make more loans to minorities and borrowers with weak credit histories became relentless. Congress passed Bill Clintons Community Reinvestment Act, empowering regulators to punish banks that failed to "meet the credit needs" of "low-income, minority, and distressed neighborhoods." Lenders responded by loosening their underwriting standards and making increasingly shoddy loans. The two government-chartered mortgage finance firms, Fannie Mae and Freddie Mac, encouraged this "subprime" lending by authorizing ever more "flexible" criteria by which high-risk borrowers could be qualified for home loans, and then buying up the questionable mortgages that ensued.

    All this was justified as a means of increasing homeownership among minorities and the poor. Affirmative-action policies trumped sound business practices. A manual issued by the Federal Reserve Bank of Boston advised mortgage lenders to disregard financial common sense. "Lack of credit history should not be seen as a negative factor," the Fed's guidelines instructed. Lenders were directed to accept welfare payments and unemployment benefits as "valid income sources" to qualify for a mortgage. Failure to comply could mean a lawsuit.

    Barney’s Frank has his fingerprints are all over this fiasco. Time and time again, Frank insisted that Fannie Mae and Freddie Mac were in good shape. Five years ago, for example, when the Bush administration proposed much tighter regulation of the two companies, Frank was adamant that "these two entities, Fannie Mae and Freddie Mac, are not facing any kind of financial crisis." When the White House warned of "systemic risk for our financial system" unless the mortgage giants were curbed, Frank complained that the administration was more concerned about financial safety than about housing.

    Now that the bubble has burst and the "systemic risk" is apparent to all, Frank blithely declares: "The private sector got us into this mess." Well, give the congressman points for gall. Wall Street and private lenders have plenty to answer for, but it was Washington and the political class that derailed this train. If Frank is looking for a culprit to blame, he can find one suspect in the nearest mirror.

  • Anonymous
    5 years ago

    Mitt Romney by skill of a u . s . mile. Romney has built and run a effectual organisation. He did an attractive activity of saving the Olympics. Radical Left Wing Extremist Barack Obama has never run some thing. He has been an abject failure in each savor as president. He knows truly not some thing approximately economics. I doubt if he even took economics one hundred and one. He has finished each little undertaking incorrect. i think of it is been intentional. i think of he intends to break the corporate equipment of this u . s .. He intends to break capitalism and institute socialism. He has studied all of it of his existence and each physique in his existence has been socialist or communist. there are the form of massive quantity of themes he would have finished to help the corporate equipment: strengthen the drilling bans, decrease the corporate tax cost, approve the Canada pipe line. The worst element he did to destroy the corporate equipment is the element he's proudest of: Obama care -an finished disaster. quickly that isn't even an in intensity contest Mitt Romney could do a reliable activity. Extremist Obama hasn't a clue.

  • 1 decade ago

    Banks loaned a lot of money to people to buy houses who couldn't afford to pay it back.

    The collateral (houses) fell in value

    The banks have only 5% of their assets in equity

    The rest is liabilities or deposits which the Federal Government insures.

    Banks now can't loan money to people who will pay it back, because they don't ahve it and you need a good credit system like you need oil to keep things running smoothly in your car.

Still have questions? Get your answers by asking now.