1) The Fed (Greenspan) loosened money supply tremendously after 9/11/2001. That was a good idea, since the “grease” of money was needed to keep the financial machinery moving in the money center of New York, a target of the attacks.
2) The Fed continued to dump money into the system well into 2003 (and up to 2005 IIRD), long after it was needed. The WSJ screamed from the rooftops about excess money supply.
3) Real Interest Rates (Cost of Money Interest less Inflation) were negative for several years. This was the Fed’s way of BEGGING people to take the money: “It’s better than free, we’re paying you to take our money!”. Many did.
4) That excess money had to go somewhere. Housing looked like a good bet. Many people put their excess money into housing.
5) Congress, in the person of Bawney Fwank, whose gay lover was a key Director at the appropriately named Fannnie, wanted looser morals / restriction around Fannie. He (and most other Congresscritters and Bush too) wanted everyone to own a home. Even people who couldn’t afford them. So they passed laws making sure Fannie could blow it out the back door.
6) Wall Street invented some really nifty financial vehicles that nobody really understood, but they allowed tremendous amounts of money to be bet on the future direction of housing prices. These financial vehicles appeared to be low risk; they had Fannies name associated with them. Everyone got rich hawking these things (CDOs, etc.)
7) Lots of people thought they could get rich quick by investing in alternative asset classes, including Hedge Funds. Hedgies agreed to take their money, and put the proceeds into those nifty new Financial Vehicles like CDOs, which had always gone up and not down. Everyone’s a winner!
8) ACORN assisted by one Barack Obama sued banks over “red lining,” which was defined as the effect of maintaining good lending practices. When you have conservative lending practices, you tend to lend to good earners who can pay you back. They tend to be in the suburbs. Those non-earners in the city tend not to get loans. This looks like racism, since the relative non-earners are people of color in the city. ACORN won a bunch of lawsuits by screaming “racism,” and banks quickly learned to loan anyone money, whether they could repay or not. The just quickly packaged up those loans and sold them to the Wall Street Hedgies so they wouldn’t be holding the bag when the sh*t hit the fan.
Eventually, housing prices stopped going up (the music stopped), and everyone looked for the economic exits (”where’s my chair?”) There were no chairs. Everyone was expecting the other guy to be holding the actual value, yet nobody had actual value. All that paper was predicated on a bunch of people who couldn’t really pay their mortgages because they were too poor to start with, or had placed their own bets (with big houses they couldn’t afford) that housing prices would rise forever.
Voila! Housing crisis.
You’ve told me nothing I did not already know.
Now, please tell me who, in the government or ACORN, put guns to the heads of the “...bunch of people who couldn’t really pay their mortgages because they were too poor to start with..” and FORCED them to take out these mortgages.