[RoosterRedux]

What do you say to people who believe the Subprime Mortgage Crisis caused the recession, starting when people who couldn't afford their houses started to sell, causing a collapse of home prices?

I realize that other factors contributed, but it appeared to me that the primary reason for the housing collapse was easy lending to people who had no earthly means of repaying their loans.

[DannyTN]

Well the banks weren’t making loans to people who couldn’t afford them. They were making 100% finance loans, but it was still based on income. There were very very few prosecutions for fraud in the mortgage space. People weren’t overstating their income. But both banks and consumers were assuming their income would continue.

The relaxing of credit standards and subsequent retightening might have played a small part. But whether you have a 100% loan or an 80% loan, when your job goes away, you’re going to default. And the reason the jobs went away can be seen in the oil price chart in 2007 a year before the mortgage crisis.

Now we have another oil price spike. And it’s taking a toll on disposable income, consumer psychology and jobs.

[DannyTN]

Disposable income. You can't really see the disposable income impact in 2007. But you can see it now.

Oil Price: You can clearly see the oil price spike in 2007 and the one we're in now. But we have gotten some temporary relief.

Unemployment: You can see the rise in unemployment from Jan 2007 to Oct 2008. THAT is why mortgages failed. We're not seeing a rise in unemployment yet. But with oil prices up and disposable income down, and tech sector layoffs, it's certain to happen.

If you go to Fred and look at the chart, you can place your cursor on a spot and it will tell you the month and year and the value.

FRED: Unemployment Rate