Root Causes of the 2008-2009 Economic Crisis
For this paper I will look into the 2008- 2009 Economic Crisis. There were many factors that contributed to the crisis; I will focus on what may have led to the downturn of the economy and some of the policies implemented by key actors responsible for turning our economy around. I will also look at those who have changed monetary or fiscal policy, and laws governing business since the collapse. I will also give my thoughts on whether these changes will actually be successful on turning things around for the better of our economy.
The economic collapse of 2008 has affected so many people across the nation. With the ...view middle of the document...
Every month I made my 2400.00 payment to my mortgage company so that I could live the “American Dream”. Luckily I had a great job where I was able to consistently make good money and was always on time with my payment. As the housing crisis began, I was nearing closer to the end of the fixed rate portion of my loan and was unable to refinance my home to get locked into a 30 year fixed rate. After 4 years of making my 2400.00 payment, the rate changed and now my new payment was to be 3300.00 and there would be no way possible for me to make that hefty payment.
I called my lender on a daily basis to see if there was anything I could do, unfortunately because of the money I was making (46,000 annually at the time) they were unable to do anything with my loan. My only option was to short sell my home and pick up and move on. In my case I lost my home due to the fact that lenders were not willing to work with those who wanted to salvage their mortgages and ended up losing all my savings and everything I put into the house.
The whole mortgage bubble that led to the collapse was definitely a big scheme. As house values got higher and higher, the lending practices got more and more lax and more people got locked in to mortgages they could not afford. Investors were buying up homes and refinance them as their value would increase just to cover their mortgages.
Some think that the Community Reinvestment Act is partly to blame for the mortgage crisis that led to the collapse. The Community Reinvestment Act (or CRA, Pub.L. 95-128, title VIII, 91 Stat. 1147, 12 U.S.C. § 2901 et seq.) is a United States federal law that requires banks and savings and loan associations to offer credit throughout their entire market area and prohibits them from targeting only wealthier neighborhoods with their services, a practice known as "redlining." The purpose of the CRA is to provide credit, including home ownership opportunities to underserved populations and commercial loans to small businesses. It has been subjected to important regulatory revisions. In 1995, as a result of interest from President Bill Clinton's administration, the implementing regulations for the CRA were strengthened by focusing the financial regulators' attention on institutions' performance in helping to meet community credit needs. (Clinton Helped case the Housing Crisis, 2008)
These revisions with an effective starting date of January 31, 1995 were credited with substantially increasing the number and aggregate amount of loans to small businesses and to low- and moderate-income borrowers for home loans. These changes were very controversial and as a result, the regulators agreed to revisit the rule after it had been fully implemented for seven years. Thus in 2002, the regulators opened up the regulation for review and potential revision. Other rule changes gave Fannie and Freddie extraordinary leverage, allowing them to hold just 2.5% of capital to back their investments, vs. 10% for...