I guess I just want to know why. WHY is this happening?

[msallied]

No one can seem to really stop and answer exactly how things with our economy got so bad so fast. How are these companies that have been around for half a century or more suddenly be bankrupt? Has this been a problem that has been going on for a long time that has finally reared its ugly head? It's not enough to say that people simply stopped paying their mortgages. I don't believe it. Besides, WHY were people losing their homes? How did this happen???

I've read so much, but I guess I just wish I had a more definitive answer. Maybe I'll never get one. I know this. But I just am at such a loss over it all. And it scares me.

[cags]

1. I think part of it is Americans losing their jobs to overseas, can't pay there mortgages with no job

[BrklynLiberal]

2. GREED> Unadulterated, pure malevolent greed....aided and abetted by BushCo and its minions

As long as they got what they wanted in the short term, they did not consider, and did not really care about the long term consequences.

As long as the big corporations got their huge profits, and no regulation, nothing else mattered.

It is the 1920's/GreatDepression REDUX.

One man's opinion....
http://www.newsweek.com/id/123811
Beware the Bailout
In rushing to fix one problem, has the Fed created others?


<snip>
At the epicenter of the crisis are the now-notorious "subprime"
mortgages made to weaker borrowers and subsequently "securitized."
<snip>

[JBoris]

21. I'll 2nd that opinion. nt

[gateley]

27. Agree with the greed, disagree about the Great Depression REDUX.

This will be the Great Depression SQUARED.

[elleng]

3. Check out this guy:

http://www.npr.org/templates/story/story.php?storyId=89338743

[napoleon_in_rags]

40. That was awesome.

Bizarre, but revealing. Its like they were reporting faith based assets. Mind blowing.

[truth2power]

44. I beg everyone here to listen to the above edition

of Fresh Air from yesterday.

"Perplexed by the U.S. economy? You're not alone. Law professor Michael Greenberger joins Fresh Air to explain the sub-prime mortgage crisis, credit defaults, the shaky future of other types of loans and what we can expect from the U.S. financial markets.

Greenberger is a professor at the University of Maryland School of Law and the director of the University's Center for Health and Homeland Security."

One of the best explanations I've heard yet of what this mess is all about.

[Indiana_Dem]

4. I've been reading about it online for about 4 years but nobody

else I know really listened to my comments about it. Heck, my 100 year old grandpa wouldn't even take his money out of the financials last year when I told him to do it. He's probably lost thousands by now. :(

I've spent 5 years paying down all my debt. I now have zero debt. I've stocked up and prepared as much as I've been able to. I'm still not ready but I've been working on preparation and trying to tell people for almost 5 years now!!! It's been out on the web all over if a person was looking.

I even asked my financial guy from work for our 403b 5 years ago if they had any precious metal funds I could buy into and he laughed at me and said the market was sound and treated me like I didn't know what I was talking about. He thought I was reading some whacko stuff on the internet! Just Financial Sense.com....google James Pupluva (I think). He's been right on it all these years.

[girl gone mad]

12. Yep. Been reading about it for 6 years.

Yes, it's been building at least that long. The housing bubble started in CA, with prices shooting up and crazy loans becoming commonplace.

I'm surprised that the powers that be were able to stave it off as long as they did. It seemed like the financial storm was going to hit last August, but somehow we avoided it.

Peter Schiff has been right and gives good analysis, though I never agreed with his opinion that foreign markets would decouple before the crisis hit. I do think he's right that at some point they'll figure out that our dollars are not worth their labor and materials.

[Beregond2]

5. It's mainly about loans being given to people

with little or no collateral and not enough income. And that happened due to greed on the lenders part, pure and simple. And it would NOT have happened had the Republicans not spent the past 28 years dismantling the regulatory apparatus that had prevented this kind of thing from happening for the previous 45 years.

It isn't really that hard to understand. Don't let them baffle you with bullshit.

[sandnsea]

15. Actually many did have collateral and income

To pay for fixed rate 30 year mortgages. They convinced these people to take interest only mortgages, and then upgrade their home in a few years. Yes, greed. But most home-buyers would have been just as happy with an old-fashioned mortgage if they hadn't been talked into this new economy bullshit.

[Beregond2]

37. True. That's another piece of it.

[housewolf]

6. People are losing their homes beccause of Adjustable Rate Mortgages

Too many new-home loans and folks refinancing taking their equity out in case were given, both of which played a big part in swelling up the "housing bubble" of the last few years. But all bubbles have to burst, and now many folks find themselves in the situation of being "upside down" with their mortgages, where the amount due on the mortgage is greater than what the house can be sold for, and others where the mortgage interest rate has jumped up requiring payments that are way higher than what they were at the start of the loan, leaving people in the position of being unable to make their payments, and since prices have dropped so dramatically, they can't sell the home for as much as they owe on it.

[WinkyDink]

45. We bought our home at the height of the 80's increase (DUH!), but even then I knew that "Adjustable"

was nothing but a "GOTCHA!"

[TheKentuckian]

7. Its been brewing for forty years

Certainly at least since Reagan. They've been dismantling oversight and inciting greed.

[gateley]

29. i think you're right. That was the beginning of the end. nt

[frankenforpres]

8. complex, but in short

people at all levels spent way too much on housing. all the mortgages get packaged together as an ostensibly safe investment. these "safe" financial instrument are then packaged and sold to other investors. when the housing bubble collapses, all this shit unwinds.


Here is a satire:

<object width="425" height="344"><param name="movie" value="http://www.youtube.com/v/z-oIMJMGd1Q&hl=en&fs=1"></param><param name="allowFullScreen" value="true"></param><embed src="http://www.youtube.com/v/z-oIMJMGd1Q&hl=en&fs=1" type="application/x-shockwave-flash" allowfullscreen="true" width="425" height="344"></embed></object>

[napi21]

9. It all started with Reagan over 30 years ago. Take out all the

pesky regulations and let Companies rule themselves. Get rid of those damn unions. Privatize everything...gov't is BAD!

It took a long time to prove to the American people that this trickle down stuff is BS, but I think they get it NOW!

It really didn't happen FAST either. Anyone who was really paying attention knew this was coming. I was scared to death that the Pubs were going to be able to hold it off until a Dem took the WH, and then blame it all on HIM!

My 65th B Day was this past Monday, and my 401K is taking a bath! I HATE that this is happening, but I'm glad it's happening on Shrub's watch! That scummy little pr*** will live on in history as America's WORST Prez! And NO, GEORGE, history will NOT forgive you!

[gateley]

30. Agree - Reagan. nt

[Cogito ergo doleo]

10. Naomi Klein is has a good rundown here (video)

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=385x190476

[Birthmark]

11. Short answer

Over the past few decades, everyone has been borrowing like mad. One bump in the road and this junker flew into the ditch.

[sandnsea]

13. B-U-B-B-L-E

Just another bubble, this time in credit and mortgages. They sold risky mortgages when they could have sold people safe ones, I know this to be a fact. It was obvious that they would run out of people to pay these mortgages sooner or later, and it would all fall in on itself. Greed. Pure and simple.

[CK_John]

14. It's easy, the smart money knew the game would be over soon and took the money and ran. n/t

[quakerboy]

16. when you spend years hollowing something out

then it is hollow.

Think of a porch. If you went below it every day with a chisel and removed a little wood from one of the boards, eventually it would break. It would not be a gradual thing. It would happen when the wood was weak enough and someone stepped on it. If no one stepped on it for several months, it wouldn't break just sitting there. But one Holiday, your uncle wants to avoid his mother in law, so he steps outside to smoke, and bam. Broken deck, broken ankle, big problem.

[OHdem10]

17. Our Congress failed us. It is scary to think they were all that stupid.

This is what happens to a country where politicians are controlled
by Business. Do not let them get away with playing dumb.

[Imagevision]

18. Absolutely Republican sheer stupidity...and nothing less as Obama's numbers return

[lonestarnot]

19. Deregulation of banking industry, lack of oversight on the greedy.

McSame!

[abumbyanyothername]

20. The issue is not that complex

We were creating more and more and more ways for people to lend and borrow more and more and more money with less and less and less capital or equity sitting below to support all that lending and borrowing. In most cases, the lenders were also using borrowed money, but to say money is probably confusing, because you are probably thinking of the paper stuff that you put in your wallet. We were using electronic credits -- printing the paper was just too damn slow.

As credit expanded the economy seemed wonderful -- stock prices were going up, home prices were going up, wages . . . not so much, but because everyone was asset rich no one cared.

Then one day we made the last loan. We found a borrower with no credit history, no collateral and no apparent means to repay . . . and we made her a loan. Like peak oil, we didn't know it was the peak of the credit expansion, but it was.

Since the last borrower had been sucked in, there was no longer any way to keep expanding the credit economy. Without credit expansion, asset values stalled. Without growing asset values the lack of ability to repay on the part of more than a few borrowers began to show -- they could no longer sell or refinance their way out of their negative cashflow.

As borrowers defaults mounted some of the lenders began to suffer. They in turn defaulted on their loans from their lenders. Up the food chain we went, until finally Fannie and Freddie went bk. AIG wrote tons of credit default swaps that began to move horribly against it and took it out. The investment banks have tons of these exotic securities on their balance sheets and are way under water.

The hedge funds were loaning huge amounts of money to the banks, but they all figured out the game and pulled their lines all at once. Everyone needed to conserve cash, and no one was willing to lend to each other and the avalanche (leading to the Obama landslide! see my other posts!) started.

Once it started it fed on itself "reflexively" to use George Soros' term. As default rose, lenders suffered losses and had less to lend. As fewer loans were made and assets were sold in fire sales, asset values plummetted. This put further pressure on borrowers all up and down the food chain.

The ultimate question here is whether the US Government is solvent. And, perhaps more interestingly, what is the consequence if the quintessential AAA credit in the world for the last 60 years is insolvent?

[aint_no_life_nowhere]

22. Officials Reject More Oversight of Hedge Funds - New York Times

http://www.nytimes.com/2007/02/23/business/23hedge.html

By STEPHEN LABATON
Published: February 23, 2007

WASHINGTON, Feb. 22 — The Bush administration said Thursday that there was no need for greater government oversight of the rapidly growing hedge fund industry and other private investment groups to protect the nation’s financial system.

Instead, the administration, in an agreement it reached with the independent regulatory agencies, announced that investors, hedge fund companies and their lenders could adequately take care of themselves by adhering to a set of nonbinding principles.

(...)

[BrklynLiberal]

23. Famous last words.......

[LaPera]

24. Years of republicans fighting for deregulation for all corporations. Let the corporations regulate

themselves and prices will go down for consumers, complete lies and the opposite will always happen with corporate deregulation in a democracy...."Corporate deregulation" Reagan & the republicans bullshit mantra - all the existing rules & safeguards for years were thrown out the window, they convinced the ignorant that corporations will do fine "regulating" themselves, that corporations are more efficient than government, it's "good for tax payers and consumers". Tax cuts for the rich & corporations. All self severing bullshit and the gullible believed them.

As well as having the heads of every regulatory agencies, labor, EPA, Health & education, industry, consumer rights, et al. all government headed by the same exploiting corporate heads legislating with corporate lobbyist writing the laws for corporations greed...who's only concern are more corporate profits, the corporate polluters voluntarily regulate themselves, let the monopolies charge what they can, competition is good, what competition, only monopoly collusion & gouging....along with the bullshit imperialistic wars for corporate profit through our taxes, putting us over 10 trillion dollars in debt.

Now the republican corporate fascist are trying to point the finger elsewhere as if they had nothing to do with it....it just happened....and they still want to privatize all government programs....it's republican ideology who put us here with years of unchecked power through stealing elections.

[bridgit]

25. Reaganomics, it's taken longer than even they thought to finally trickle down

[TheDonkey]

26. Well it's complicated. Simply why the major investment firms are collapsing (because they OWED ea)

other money. Lehman Brothers owed a lot of money to Lynch so when LEH collapsed Meryll shopped itself immedietly because they knew it would also be up the creek. This is a domino effect and it is not over. Greedy execs and traders puffed up these banks with "free money" that is now no longer free or even in the vault.

They are safe to retire with fat bonuses. Shareholders and taxpayers left holding the bag.

[Firespirit]

28. Two factors: wage stagnation and people in denial about it.

Wages have been stagnant for years while the price of goods, especially essentials such as energy and healthcare, have gone up -- exponentially in the past few months. The wage stagnation corresponded with the shutting down of America's producing capability and "transition to a service economy."

To prevent people from smelling the bullshit on this, propaganda from marketers and the media convinced people that they were really being paid just fine, that all they had to do was go into debt and they too could have a part in "the American Dream." Credit card debt was out of control even before the housing bubble burst, because of people struggling more and more, ever so gradually, to buy what they needed, while being convinced that they could also have everything they wanted. The housing bubble took it to the next level.

It was the most successful and dangerous con job since the 20s, convincing people that they had no reason to complain about their wage not keeping pace with inflation when mountains of credit were available. They actually penalized those who did not buy into the credit brouhaha and paid for everything outright, because such people had no "credit rating" and were ineligible for any number of things that virtually required credit.

Eventually the price of essentials got so out of hand that people simply could not afford to buy their "wants" AND their "needs." It's getting to where people can't even buy their needs.

The root of this whole crisis is that people do not have enough money to live on. Look at graphs of the net worth of CEOs since the late 70s and you'll see exactly where the money went that should have gone to wage increases.

[ContinentalOp]

33. Hmm, I don't think low wages, or high housing costs caused this problem.

The housing bubble didn't cause this crash, it's the other way around.

Deregulation of the banking industry led to predatory lending practices and bad loans to risky borrowers. The abundance of easy credit and low interest rates in turn brought up housing prices and created the real estate bubble.

Then the interest rates started to creep up on these adjustable rate mortgages, foreclosures started to rise and the whole house of cards began to come down.

Somebody posted an interesting segment from Democracy Now earlier today that argued that the failure was part of the whole plan. Write a bunch of bad loans and take in as much money as you can in the short term, knowing that when your company goes bankrupt the feds will bail you out.

I guess what you're saying is true though now that I reread it. The runaway desire for credit comes from the reality of lower wages combined with the marketing of phoney "needs." It's all part of a self-perpetuating cycle I guess.

[Firespirit]

36. I don't think we disagree

What you call "risky borrowers," I call "people with stagnant wages." People suckered into ARMs because of propaganda.

Several people in the thread have explained the technical details of the bust that caused all this. My post was to expand upon why the risky borrowers were considered risky. I try not to place blame at the bottom of the food chain, that's all. They made some bad decisions, but that does not absolve the people who put them in the position of looking to an ARM as the only way they might see home ownership with their poor wage.

:)

[TheDonkey]

39. Yes, in a sense the "wealth" that Americans were chasing in home values was imaginary

much like the skyhigh Pet.com stocks during the internet bubble bust.

We do not have tangible wealth in this nation. Have not had it in a long time. We are producing no goods (or even services) that are competitive on the global market and Republicans are just standing by.

[TheDonkey]

38. Yes, professionals and the business media new this "bubble" would burst and it made no sense

allowing this to go so far is criminal in many cases. When a bank is issuing 50 year loans, I shit you not, 50 YEARS amortizing. If that is the only loan you can qualify for you CANNOT AFFORD THAT HOUSE.

Bush ignored this because it was the only thing propping up our failed economy in 2004. Remember Bush's ONLY positive economic soundbite? "Homeownership is at an all time high!" Well that was because it was fraudulent. The execs made their money, now the shareholders and the tax payers are left with the mess.

[ContinentalOp]

31. They gave bad loans to high-risk borrowers...

knowing that the Feds would bail them out when the house of cards came crashing down.

As many have said before, the profits are private, the risk is socialized.

[KT2000]

32. Isn't this happening

because these institutions took a bunch of loans that were risky and kept reselling them in bundles to other institutions knowing that they were much riskier loans than they let on, such that when the borrower was unable to pay the loan, either because of job loss, increased interest rate from an ARM, the failure of that loan affected everyone in the chain of command of that loan.
The one house that was supposed to be collateral for the loan was used over and over again.
Then the housing prices decreased and the market was glutted so the worth of the collateral could never even pay off the first lender in full if it was "returned to the bank."

In other words, these institutions figured out a way to make lots of money by turning over bad loans so their business practice was to make even more of these bad loans so they could resell them and their bottom line each month would look stellar. In order to keep the bottom line stellar every month or quarter they had to devise methods, such as having applicants lie about income, to get more people to take out home loans. This drove up the price of houses. They were making commissions and profits off the resale of the bundled loans - they did not care they were destroying the housing market and the rest of the economy and people as well.

[jeanpalmer]

42. There's no doubt that bad lending practices

precipitated the crisis. Loans that were made to people who lied about their incomes, loans that required no payment of principal and only partial payment of interest, loans made at low rates that reset at higher rates 1, 3, or 5 years later that people clearly would not be able to afford -- these were all unsound practices that clearly put the system at risk. They were practices that any rookie regulator doing his job would have put an end to. But the Republican free market hands off mentality prevailed among the regulators, and they faled to do their jobs. That's why we're in this predicament.

[SheilaT]

34. For what it's worth,

Merrill-Lynch published a chart at least ten years ago that showed the historical pattern of the Dow Jones, projected into the near future. It showed the stock market peaking in the early 21st century, and possibly crapping out after that. It's based on the Baby Boom's movement through time.

I don't know if that's very germaine to what's happening now.

But no matter what, it's all cyclical. If this were September, 1929, I'd be saying something similar. What I would not know is just how long the economic crisis would last. It's important to understand that earlier era to know that the farm economy, which had had a huge boost during the world war, was in grave trouble. Read The Worst Hard Time which focuses more on the dustbowl era, does give a brief explanation of what went before.

While there are aspects of what's happening now that are similar, it's important to distinguish what's really different. I don't think our farm economy is in dire straits. We do not have ordinary citizens buying stocks with only 10% down. Of course, we do have the real estate and foreclosure thing happening. What I don't know is if the home mortgage crisis affects as many people as the stuff in 1929 did.

[demwing]

35. We aren't creating jobs with decent, livable wages

So the "jobs created" figure Republicans boast of has clearly not aided the economy. It's another lie from the lying liars.

[jeanpalmer]

41. The country went on a credit binge

over the past 60 years, and got deep into debt. Household debt as a % of household income has been rising for 60 years. Over the past four years, it increased at a rate of 11% a year. That trend couldn't go on forever. In 2003, the Federal Reserve lowered its interest rate to 1%, bringing on an orgy of mortgage lending to unqualified buyers and a housing bubble. When the Fed raised rates in 2004 and 2005, people couldn't afford the increases in their mortgage payments. And they began defaulting on ther loans. And the debt began collapsing on the banking system.

The collapsing of this credit has brought into question the solvency of financial institutions. Some institutions like Bear Stearns, Fannie and Freddie, and now Lehman and AIG, have become insolvent. Many more appear to be on the brink of insolvency. Because the public is unable to know the real status of any particular bank, a general loss of confidence in the banking system has developed. This along with a slowing economy has caused a huge selloff in stocks. And the fear has set in that the banking system and the financial markets could collapse.

The credit crisis hasn't been just a US phenomenon. It has spread to Europe and other countries, and is now causing huge selloffs in financial markets worldwide. Russia has shut down its stock market, and lending there has come to a halt.

The end result is we're in this downward spiral where our banking system is failing, financial assets are being sold off, and people are losing confidence in the system. Once that trend sets in, it's hard to reverse. Fear takes over and drives the system further down. It's like a row of cascading dominos. Who knows where it will end.

[OneBlueSky]

43. two reasons, imo . . .

1. greed on the part of the wealthy who control everything

2. the desire of BushCo to create a crisis so bad that it will effectively destroy government as we know it . . .

[JustAnotherGen]

46. I think a lot of excellent answers have

Already been posted. So I'm going to take a different tack on why this 'bubble bursting' has me scared.

I'm a Telecom/Tech person. I got into 'the game' in the mid/late 90's as a young twenty-something. I weathered the Glotanic. Literally. The difference between that and this?

Telecom, once you have the backbone of your product? And I'm including the 'Internet' in this . . . it's smoke in mirrors. It's just finding creating ways to bill people for products that you had to develop on the front end, even though the back end has long been built.

This? This is about something REAL. Bricks, Mortar, Wood, Beams, Nails . . . There is nothing 'smoke in mirrors' about a boarded up home and human beings living out of the back of their car.

[Borgnine]

47. I prefer to just accept the simplest explanation.

Bush turns everything to shit. He's a fecal alchemist.

[msallied]

48. I really want to thank you all for contributing to this thread.

You have said a lot of what I was thinking, but wasn't certain about. I feel a lot less in the dark about this whole thing now. I have bookmarked this because there is a lot of great information here.

[elleng]

49. More explanation:

http://securingamerica.com/ccn/node/16571

[Whisp]

50. deregulation has allowed robber barons to steal all they can and run

with their golden handshakes
and the taxpayers foot the bill and heartache.

thats been the basic recipe for ultra capitalism for a long while now, but lately it's shameless how they are so bold in their moves. Bush has allowed them cover for their crimes.