In short, the 2008 housing crisis was caused by a combination of factors including lax lending standards, the widespread issuance of subprime mortgages, artificially inflated housing prices, a lack of regulation in the financial market, high levels of household and financial sector debt, and a failure by credit rating agencies to accurately assess the risk of mortgage-backed securities.
Many parties played a role in causing the crisis, including the following. I put them in order as well:
- Government: interest rate manipulation and policies which encouraged the issuance of subprime loans and failed to adequately regulate the financial market.
- Households: who took on high levels of debt and bought homes that were overvalued.
- Mortgage lenders: who issued subprime mortgages to borrowers with poor credit histories, often without adequately evaluating their ability to repay the loan.
- Financial institutions: who invested in mortgage-backed securities without adequately assessing the risk, and who were highly leveraged, making them vulnerable to economic shocks.
- Credit rating agencies: who failed to accurately assess the risk of mortgage-backed securities, leading to widespread misperceptions about the safety and quality of these investments.
- Investors: who bought up the securities sold by the investment banks, improperly rated by the credit rating agencies, but essentially did not understand what they were buying, instead chasing returns.
In the end, the 2008 housing crisis was a failure of the entire system, and all parties played a role in its creation. It’s almost unbelieavable how every single chain in the system cooperated. How is that possible at such a scale?
Yes, I would suggest that the govt. was the chief cause though in making it all possible, even encouraging it, to avoid a depression in the early 2000’s. Sorry, Ben Bernake, you don’t deserve a Nobel Prize, but then again, I heard they award the prize to war criminals, but I digress.
In other words, the fault existed in every segment of society. Sure some of it was ignorance (I bought a home with no money down in 2004), but I knew plenty of people that were buying homes that probably shouldn’t have, and more importantly were essentially speculating to try to get rich quick. I know of one story where they owned so many homes, the wife did not know how many homes they owned (for personal use as far as I understood it). But most speculation is for short term flips riding a wave.
This does not mean everyone is guilty of course, but that no party, govt, banks, lenders, investors, and private citizens were all part of the problem. Such is the world today. I am sure corruption, mismanagement, ignorance of the past, and desire for power, exist everywhere in every party, group, and institution, so the question is, can we root it all out before it is too late?
Is it far, or is some of it near as well? I know I should be focused on things I can control like working hard, trying to save, helping others less fortunate. These are just a few of the blocks that always uphold civilizations. When I see several articles online for example that suggest it’s in fashion for men to drop out of the workforce and do nothing all day, if true, then clearly society is lost in addition to our overspending, increasingly corrupt govt.
The decay of a civilization and collapse of a society requires participation from a large portion of the entire civilization, but you have to look to find it. I rarely hear any of these groups admitting their own contribution to the problem. Anyone ever hear of the “beam” and “mote” parable? Doesn’t seem like it.
And if we don’t get our act together, China will take over the world.
FYI: Some of this I sourced from ChatGTP, and will do so for future posts.