I've read a lot over the past few years about how government policies that supported the notion that "everyone deserved to own a home" had a hand in causing the eventual housing bubble and the subsequent economic collapse of '08.
What are some of the policies that directly supported this idea and do you guys know of any evidence that directly implicates these policies as a cause of the crisis?
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This is for homework isn't it?
Not for homework, but we did discuss it in class. My teacher is pretty liberal and is in favor of even more regulation. I'd like to find some hard data to argue with during the next class.
Just tell her Carter and Clinton fucked us all.
Yes, government caused the crisis. And no, shockingly, the government won't admit it. They will continue to blame free market capitalism which hasn't existed in this country since 1913.
The Federal Reserve keeping interest rates too low for too long in from 2001-2003 flooded the economy with cheap money and Fannie and Freddie Mac made sure all that money went into housing. Wall Street might of gotten drunk, but the government liquored them up.
http://www.theatlantic.com/business/archive/2011/12/hey-barney-frank-th…
There's plenty of blame to go around. Anyone who tries to pin it on one source is fooling themselves. For the crisis to happen, government, banks, consumers, mortgage brokers, investors and ratings agencies all had to play a part. If you take any one of those parties completely out of the mix, it wouldn't have happened. I personally think government played the largest role because our government is supposed to be watching the entire system to make sure nothing goes wrong (if that's not their role, why does the government even exist?), and they were clearly asleep at the wheel. Interest rates were too low, lobbying dollars were too high, and they repealed glass-steagall.
The problem with Glass-Steagall is that it was needed to counteract the moral hazard created by the FDIC. The government is at the root of the problem.
I agree Jeff, it's primarily the government's fault, but the government did not act alone, even if it had most of the responsibility for preventing the crisis.
Gov't, business, consumers....all of them had their role. The entire nation being caught in a bubble wasn't any one person or group's fault...it was EVERYONE. Everyone tried to get in on the action and (1) get out before everything hit the fan or (2) were delusional enough to think that 20%, 30%, 50% or higher growth per year was in any way based on reality.
The banks bought potentially unstable assets, repackaged them as prime, and then leveraged the hell out of them. When the general economy cooled, the fallout wasn't just a percent of loans gone bad, it was the financing of entire companies now at stake.
The government created the environment that allowed this bubbled to not only exist, but flourish. Lowered interest rates, regulator negligence, active encouragement of the public to buy things they couldn't afford, and a general misuse of confidence created and fed the trend.
The consumers bought houses far beyond their means. Many were ignorant, but many also were speculating. Unfortunately, these were the people that actually got hurt the worst in the largest numbers: banks and the government are still around, many people lost everything.
It really is that simple, don't overthink it.
If Fannie and Freddie weren't there, there'd be no implicit US gov't guarantee. Hence, I would be hard-pressed to think of how the market for said unstable assets would have grown as large (and less of a volume of derivatives based on said assets). Maybe?
Think of it this way. Lets say you have a car and your warranty covers everythig even you crashing it. Would you be more likely to drive it harder? Of course you would compared to if you had no coverage what so ever and you had to pay for everything out of pocket.
This is pretty much exactly what the situation was. The government was pretty much saying. Hey you guys go drive like wreckless idiots, dont worry about the damages we got you covered. Then when it came time to cover everyones left pointing a finger at everyone else.
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