THIS IS WHAT CAUSED THE CRASH--YOU HEARD IT HERE FIRST! when a homeowner put down 10% for an 800k house and 6 months later an appraisor said it was now worth 975k. then the homeowner would ket a 200k home equity loan and use 10% of that as a down payment for an investment property with his cousin Bob who did the same exact thing. they would then have that investment property appraised and it would of course be inflated and they would get a home equity with that home as well.THEY ALSO FINANCED EVERYTHING ELSE LIKE HOME REPAIR FOR THE INVESTMENT PROPERTY AT HOME DEPOT WITH 0% FOR THE FIRST YEAR....ECT.. now the house of cards falls !!! see how this whole mess happened? then lehman and bear caused confidence in our financial sysytem to crash and it was all down hill from there.
This is what was happening at the peak of the housing market. Bubbles always end with massive speculation and massive leverage at the top. What is happening now really started back in the mid-90's when the FED began a very loose credit policy. It was very subtle back then and it was labeled as, "the greatest economic expansion in US history." That massive Bull Market actually ended in March 2000 with the Tech Bubble but the actions of the FED prolonged it and kicked in another bull market in stocks, but not one that would take out the highs of March 2000. Now the FED is helpless and the US will go the way of Japan. If you study the shape of the Nasdaq Bubble and compare it to the shape of the Nikkei Bubble they are almost identical. It was the aggressive actions of Greenspan and Co. and an absense of a Real Estate Bubble that turned the market around in 2002. The FED was trying to prevent the US from experiencing what happend to Japan but instead, they created the very thing they were trying to avoid. How Ironic.
I totally agree. The problem is they need to make banks loan money. Cutting rates does not help unless the banks make easier credit. Easy credit leads to inflation and increased GDP.
Yes, the housing bubble played a big role, but the root cause for the crash was the cumulative effect of the trade deficit, getting us to where we were so deep in debt that when the SIV's and CDO's began to default when the housing bubble burst, the foreigners lending it to us realized that we (individuals and corps) couldn't or wouldn't repay it, and that caused them to no longer be willing to lend us more each day, which caused a credit crisis. Once that happened, the leverage started to unwind, and now the foreigners are ONLY willing to lend to the US government, that is until they realize that our government is not able to repay them, either, except by printing the money to give them. At that point the dollar will be toast.
I think what we may be overlooking is the net effect it will have on other countries...and ,ironically ,the best possible currency at the end of the day will be the Yen although they too will experience deflationary pressures for some time. The US may have its problems now and definitely in the future, with exception of Australia and a couple of South Eastern countries, the US is probably be the best place to be....it is going to take a lot of time to turn this around, so we simply will have to be patient. As for blame...plenty to go around.
Even if the banks are forced to lend it's not going to address the core problem with the economy. Our number one problem is that all of our economic policies are woefully unbalanced -- we have far too much supply-side stimulus and not enough demand side stimulus. Easier credit cannot create GDP if there no jobs. Credit requires an income stream in order for the debt to be entered into and serviced. The U.S. needs jobs. Our biggest mistake was allowing overseas trading partners to trade with us on an unlevel playing field. I'm all for free trade but it has to be fair trade -- everybody needs to obey the same labor and environmental laws. Thank God Obama won the election. He's going in the right direction and his public works plan will help rekindle some demand and job creation. There needs to be more, but at least we're finally seeing something other than supply-side.
AP study finds $1.6B went to bailed-out bank execs http://news.yahoo.com/s/ap/20081221/ap_on_bi_ge/executive_bailouts
Easy credit got us into this mess so why would more easy credit get us out of it? The addict needs detox, not another fix.
Are you talking about RE or the stockmarket or both ? My opinion is that the government created the crash. Without the government we would have had a decline but it is possible it would not have been as fast as the one we witnessed. I believe that many investors and traders lost money because of the government. Not because of the RE and CDO mess. I am very upset about this and so should everybody, they intervened in the market and screw everything up. What caused the crash in stocks IMO is this : the market was going down, many like myself knew it was going down. Then they said we are going to bailout everybody and everything will be allright. Many bought on that premise. (I had bought before the announcement on technicals after that the charts got messed up and I made the mistake of believing in th ebailout and the oversold condition ). But the market kept going down and all these people who had bought on the bailout had to get out at once. Secondly they banned short selling, which forced HF to liquidate or short other stuff , (no more hedges in financials ) sending the market in a downright spiral. The floor collapsed under the market . This is an artificial crash that took place out of sheer investor panic after a massive exit out of equities after false hopes created by the govt intervention.