An Updated Summary of the Real Estate Boom Turned Mortgage Crisis Turned Financial Crisis

The Provocateur ^ | 09/23/2008 | Mike Volpe

[illiniwek]

How did we get here? Here is a detailed analysis as I see it today and have seen it for the last nearly seven years from inside the mortgage industry.

At the end of 1999, Alan Greenspan first began raising the Prime Rate. Many have speculated as to his motivation, however there is no doubt the result, he popped the internet bubble. By the time the damage was done roughly three trillion dollars had been lost in the stock market by the end of 2000. This jarring economic event was followed by the jarring economic events of 9/11 and the revelations of malfeasance at Enron, Worldcom, et al. As such, by the end of 2001, our nation was on the brink of economic disaster. Ironically, one of the by products of the weak economy was a strong housing sector. That's because the weak economy helped usher in a low mortgage rates. (interest rates, in their simplest form which of course rarely happens, work in the opposite way of the health of the economy) While President Bush was cutting taxes, Alan Greenspan was busy furiously lowering interest rates. By the time he was done, Alan Greenspan had dropped the Fed Funds Rate below 1%. I put most of the blame on this crisis on Greenspan himself as a result of this irresponsible rate decrease. As you will see, what happened afterwards was the culmination of the monster started by this rate decrease.

[illiniwek]

You have things out of order. The explosion in internet and cell phones caused an explosion in tax receipts from income, capital gains, and all sorts of other taxes that saw an increase because these two industries caused our economy to explode. Keep in mind that when Clinton took office, about one in ten people used cell phones and the internet regularly. By the time he left, that was nearly 100%. That is a remarkable transformation.

The increased receipts caused the budget to be balanced. The balanced budget was a by product of our excellent economy. It had nothing to do with causing it.

[illiniwek]

Plenty. In fact, while the market was hot, all sorts of folks used their homes as almost a ponzi scheme. They bought a property they couldn’t afford. The made payments for a while by borrowing on credit cards and other loans. Then, they used the new equity to roll all those payments up and often this process was repeated multiple times.

[Oatka]

I wonder how much of this was credit card debt rolled into second mortgages obtained based on inflated real estate values.

I'll bet a TON. My oldest was part of this - rolling credit card debt as well as an auto and a $36,000 boat. Like others, to get the income tax writeoff as well as enjoy his new real-estate-generated "wealth", although some of this was to take advantage of the lower interest rate. Luckily, when he jumped the tracks like this, he knew it was risky and started doubling up on payments and will soon have the whole mess paid off.

Both he and his wife have almost bulletproof jobs (RR engineer and an IRS worker - and yes, I said "almost"), which is why he temporarily stuck his neck out. Many others were not so lucky - or so realistic.

[boxer21]

Some of those guys also have their agendas that are sometimes hard to sort out. Today’s WSJ has an article called, “Anatomy of the Morgan Stanley Panic” that explains how competitors spread rumors about MS and sold short in order to profit from Morgan Stanley’s demise. The culprits were: Merrill Lynch, Citigroup, Deutsche Bank and UBS AG.

Interestingly enough, perhaps Citigroup got caught in it’s own web of intrigue. But then, along comes Uncle Sam to lend a hand to the fallen “victim.”

[sickoflibs]

Here in Maryland and in NYC especially Queens there was a huge invasion of Koreans, and the illegals did the home and business construction. Koreans open small businesses which is a good thing, but in such masses the form their own society not interacting. Their kids quickly abandon their parents Korean norms and quickly join the MTV, flash the money, no morals (bottom feed), rap type culture. They were also part of the boom but maybe not subprime. Not sure where they fit in the bust.

[oldbill]

Actually, besides fellow, often legal Hispanic landlords exploiting their own, there was a lot of exploitation of illegals by Asian* landlords who saw a big moneymaker in renting to illegals. Being legal, their actions would not show up as loans to illegals, but the housing they provided was to illegals.

* Koreans, Iranians, Indians, Pakistanis

[sickoflibs]

My uncle was really upset he waited 8 years to get his stepdaughter in legally and GWB/McCain couldnt wait to give illegals legal benefits (poor benefits)