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It’s obviously no secret that the housing market is in a serious hangover. Now what really caused this bubble to form and then bust?
Most, especially on the left blame it on those “Greedy Capitalists”. Mortgage brokers that got people into homes with arms that when adjusted the buyer would no longer be able to afford it. Even though homebuyers knew what they were getting into due to RESPA laws. So is it the greedy capitalists or people trying to live a lifestyle they can’t afford?
The Federal Reserve at one point lowered the Federal Funds rate to 1% and left it there far too long. This led to cheap money and when you have cheap money it leads to riskier investments. This leads to bad money chasing out good money and creates bubbles. Many, especially on the left scorn lenders for these “teaser rates” however the real “teaser rate” was given out by the government with an artificially low interest rate that when the economy stabilized rose 4.25%. So while we hear the denouncing of unscrupulous lenders the real culprit of the teaser rates was created by the government.
So why did they government offer these artificially low rates? Well after 9/11 there was a great concern about the economy as a whole. To spark investment in hopes to keep the economy moving the Fed decided the appropriate move was to offer these low rates. Now this helped for the last 6 years. The economy has been good and the housing market was one of the main beneficiaries. Once the real estate bubble took off there was no stopping it until the bubble would pop.
So who do you think is the biggest culprit for the housing bubble and the credit crunch which is now affecting the stock market and jobs? Do we blame “Greedy Capitalists”, poor decisions of the government and the Fed or the terrorists who created a fear that lead to the rates that lead to the bubble and many good people to foreclosure?
My opinion is that the terrorists are finally having the impact on the economy they intended. The Fed could only string the public on so long before things would start to crash down. What options did the Fed have? Maybe none, we learned in the Great Depression that in a bad recession the answer is not tougher contracted money but that you liquidate banks. Of course the Great Depression would have been nothing more than a bad recession if the Fed would have not contracted the money supply. So the Fed, at least looking at past history really had no choice. However the thing that makes this different is the panic was caused by terrorism and not the business cycle.
Most, especially on the left blame it on those “Greedy Capitalists”. Mortgage brokers that got people into homes with arms that when adjusted the buyer would no longer be able to afford it. Even though homebuyers knew what they were getting into due to RESPA laws. So is it the greedy capitalists or people trying to live a lifestyle they can’t afford?
The Federal Reserve at one point lowered the Federal Funds rate to 1% and left it there far too long. This led to cheap money and when you have cheap money it leads to riskier investments. This leads to bad money chasing out good money and creates bubbles. Many, especially on the left scorn lenders for these “teaser rates” however the real “teaser rate” was given out by the government with an artificially low interest rate that when the economy stabilized rose 4.25%. So while we hear the denouncing of unscrupulous lenders the real culprit of the teaser rates was created by the government.
So why did they government offer these artificially low rates? Well after 9/11 there was a great concern about the economy as a whole. To spark investment in hopes to keep the economy moving the Fed decided the appropriate move was to offer these low rates. Now this helped for the last 6 years. The economy has been good and the housing market was one of the main beneficiaries. Once the real estate bubble took off there was no stopping it until the bubble would pop.
So who do you think is the biggest culprit for the housing bubble and the credit crunch which is now affecting the stock market and jobs? Do we blame “Greedy Capitalists”, poor decisions of the government and the Fed or the terrorists who created a fear that lead to the rates that lead to the bubble and many good people to foreclosure?
My opinion is that the terrorists are finally having the impact on the economy they intended. The Fed could only string the public on so long before things would start to crash down. What options did the Fed have? Maybe none, we learned in the Great Depression that in a bad recession the answer is not tougher contracted money but that you liquidate banks. Of course the Great Depression would have been nothing more than a bad recession if the Fed would have not contracted the money supply. So the Fed, at least looking at past history really had no choice. However the thing that makes this different is the panic was caused by terrorism and not the business cycle.
