What Caused the Financial Melt Down?
by This article covers what caused the melt down in the American economy.
Image via Wikipedia
Image by qthrul via Flickr
Image via Wikipedia
The first step to extricating ourselves from this financial mess is to understand what happened. I happened to have a front row seat to the collapse and I intend to share with you exactly what I believe caused this disaster. I am a licensed real estate agent and I also am an investor in real estate.
The first issue I am going to address is the accusations that this collapse was brought on by the banks loaning money to poor families that could not afford the loans. The reality and truth of the matter is most families that were given loans for a single family home have worked very hard to keep them. Most cases of defaults on single family homes come from Job loss, not irresponsibility on the part of the “poor” family. What really caused the problem is that in order to make homes available to as many people as possible the banks lowered their lending standards. This not only made it possible for low income families to buy homes, but it also made it possible for “Investors” to qualify for a lot more money than the banks were traditionally able to lend.
As an example, in the past as an investor if I purchased a home to rent out it was expected that I put 20% of my own cash down on the property, and then I had to demonstrate that I had enough cash reserves to cover all of my normal expenses for 6 months. This system insured the bank that even if you couldn’t get a renter the investor had enough money to float the loan until a renter could be found or the home could be sold.
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Post CommentNathan G
On June 29, 2009 at 12:36 pm
First time i came on this page an advert came up and i couldn’t close it. Anyway this is interesting and well laid out. IO lost my job today which drew me to this. I’ve learnt some new things
clafleur
On June 30, 2009 at 3:17 am
I agree with the technical aspects of what you are pointing out, but i just want to add this, the economy is not built on free market any more, it is built on greed and some people beside the originators need to go to jail. the FBI already knocked on my brothers door and he felt like they should have been talking to the underwriter instead. No one who bought a hose next door to me told the banks or the originator to give us a liars loan!
REPuckett
On July 11, 2009 at 2:31 am
You and I think a lot alike, Brad. lol
Sheila M
On July 11, 2009 at 3:13 am
i never honestly understood… in general, but … this makes america look very financially irresponsible, doesnt it?
cybertruth
On July 11, 2009 at 3:24 am
im rather impressed, brad! you actually took an amazingly comlplicated subject and clarified it for the masses.
B.S. Kitty
On July 11, 2009 at 6:05 am
Good job! What a touchy subject for us suffering masses.
DA Cournean
On July 11, 2009 at 9:23 am
Very interesting and informative!
I Have Had Enough
On July 11, 2009 at 5:25 pm
Brilliant article! The average man needs this sort of information, thank you!
cromanyak
On July 11, 2009 at 6:41 pm
Very well written, and easy to understand. After reading that I’m amazed at how misled we all are on this subject. Thanks Brad.
Sheila M
On July 11, 2009 at 9:22 pm
Just passing through ~ great article
sweetievee
On July 12, 2009 at 9:32 am
I think I understand the basic jist of it. So basically the government was “babysitting” Freddie and Fannie, but they didn’t keep a very good watch. Freddie and Fannie were “naughty,” and screwed us all over. And then the government used our own money to further screw us over by buying the rest of the banks.
So what does this mean for us now that they own the banks? Sorry, if that’s a stupid question. I’ll be honest, I’m not the best with legalities/mathematics, and I still don’t understand some of the loan/asset terminology….But the fact that I even understand some of it (because of your article) is amazing!
BradONeill
On July 12, 2009 at 1:25 pm
The problem with Government ownership of the banks is that they then have tighter control on who gets loaned money and who doesn\\\’t. This makes them very powerful political entities. currently the government can steer us into disaster through poor regulation. Either misguided policies like the one that led to the collapse of Freddie and Fannie or complete lack of oversight of funds that are backed by the government again just like Freddie and Fannie.
Imagine this scenario you as a business that manufactures firearms decide to support candidate A for congress. Candidate B wins. And passes a law that government banks should not loan money to manufacturers of firearms. This is a very real possibility. Another abuse of power that is certainly to come would be misguided pressure that forces the banks to make loans to companies the government wants to survive instead of letting the free markets determine success or failure.
Like for example The government decides that Newspapers are too important to fail so they require government owned banks to make loans to Newspapers at low rates keeping the newspapers artificially afloat far longer than they would of survived on their own. This hampers the development of the new technologies and allows the newspapers to operate inefficiently for a much longer time than they otherwise would be able to.
The other thing that will come about is Loans to companies that use unions, or don\\\’t use unions depending on who is in power.
Marie Milton
On July 13, 2009 at 8:31 am
my brother does commodity trading…he liked this page too…
take care
Mikayla
On July 18, 2009 at 10:55 am
The global financial crisis didn’t affect Australia as much as it affected the rest of the Western world..I’m no expert on the topic..but this article pretty much verified what I had originally thought Brad. Plus there’s no rivalry for corporate control in Australia and the Australian government are more supportive of their banks.
N. Lloyd Andrews
On August 3, 2009 at 4:24 pm
Great article Brad! Ditto on ElleWord. I had a fair understanding of how everything went down. It was nice to read something that kind of gels it all.