sorry, Carol, but Bill Clinton also signed some things into law that started this ball rolling.
I absolutely agree! You won't get an argument from me here, Dorothy. But here is my take on it. I bet y'all want to hear what I have to say about out, probably not, but here it is anyway
I strongly believe that the central element in our current economic crisis is the housing bubble. The question is, how did we get here? Now, I have been a real estate agent for 10 years, I have worked in a normal market, the crazy market and this down market, I have seen things that I wish would never have happened, I think the whole finanacial industry, real estate industry and appraisal industry is to blame alongside with media outlets, newspapers, magazines, tv show, books, seminars, etc. The lack of regulation and oversight in my industry is absolutely mindboggling. You flip hamburgers at McDonalds and then you go to school for 90 hours, pass a test and you are dealing with the biggest investment that people make in their life time, buying a house and your income and your ability to make ends meet and pay your bills is based on how much money these families spend on a new home and most people don't have a background or understanding of financials.
Anyway, that's a different story. The housing bubble grew alongside the stock market bubble in the late 90s to early 2000s. People who had increased their wealth based on the stock market run up were spending based on the perceived increased wealth. Consumption and with it the purchase of bigger and better homes increased and with the demand the the prices on housing increased. With it the expectation that prices will continue to rise grew. In the early 2000s with the dot com fallout, people started investing in real estate as a perceived safer alternative. Bill Clinton and the Republican congress in an effort to make housing affordable and boost the economy started what in itself was a good approach but no one knew it would spin out of control as it did now.
In 2001 the economy was very slow in recovering from the recession, jobs were shed through mid 2003. The weakness in the recovery led the Feds and Alan Greenspan to continue dropping the interest rate. With the drop of interest rate came the the decline on the savings rate from 5 % to 2 %, it wasn't a good deal anymore to put your money into a savings account. The extraordinarily low interest rate made it a no-brainer for people to buy houses, it was cheaper to buy a house and pay a mortgage than to rent.
As the economy didn't recover quick enough, our current administration in an attempt to boost the economy took steps in 2003/4 to deregulate the mortgage industry even more, paving the way for banks to actively market questionable loan products to anyone who could fog a mirror. People who had no business buying a house became home owners. Whereas in the past any investor who wanted to buy a house needed 30 % down and documentation of their income, appraisals that would take into consideration vacancies, all of that was thrown down the drain. Everyone and their brother wanted to play Donald Trump. In my state, investors were hauled in by the bus load. People who all over sudden had $ 200k+ equity in their homes was preyed upon in seminars and the main stream media to take that money out in questionable loan products and invest in real estate rental properties. New home builders were going beserk developing new subdivisions out of nowhere.
People like me who said this is madness, this is impossible to go on long term were laughed out of the room and told that we don't have a "millionaire mindset".
As people started defaulting on their loans because their initially low interest rate started resetting or investors couldn't rent out their properties, foreclosures started coming on the market, together with homes that were built in anticipation of demand, there was an oversupply of homes, starting to drive prices down. Slowly at first but more and more, banks all over sudden were faced with people walking away from their homes and the lender having to get that asset off their books. Foreclosures are usually priced 10 to 20 % less than regular sales but as the rate of default rose, foreclosures started to take home prices down.
So by now you probably say, what the heck does that have to do with me. I made responsible decisions, I didn't buy more house than I can afford. It has everything to do with you. As the flood gates open it takes every single one of us down with it. I have clients who bought a home in 2002/3, within their means at $ 300k, with 20 or 30 percent down. Reasonable, in 2005 that house was worth $ 500k +, they didn't take out a loan, didn't live beyond their means but now it is worth $ 200 or $ 250k. They lose their job or have a medical emergency, all hell is going to break loose. Whereas in the past they were able to sell and get themselves out without filing bankruptcy, without foreclosure or a short sale, they are now faced with owing more on the house than it is worth.
Now, going back to the bailout bill, I don't have much good to say about the current administration, they should have caught it before everything went to hell and a hand basket, there were signs, and I saw this coming. But they didn't, we are where we at and we need to act. The markets are freezing, banks are inundated with foreclosures and short sales, they have no more money, wall street is shuting down. That means businesses will shut down, they can't make their pay roll, credits on cars can't be given, the few homes that are sold, funding will be in question....... $ 700 bio is a staggering amount but if we don't act, our economy will go down in a tail spin, effecting every single one of us, no matter if we did all the right things and were conservative with our money.
I am accused of being the eternal optimist but for the first time in my life I am scared!! I understand what it is going on and part of me wishes I wouldn't know or understand.
