Blame For The 2000-2006 Housing Bubble Essay

Blame For The 2000-2006 Housing Bubble Essay

Length: 1065 words (3 double-spaced pages)

Rating: Better Essays

Open Document

Essay Preview

The issue of whom to blame for the 2000-2006 housing bubble has shifted from an economic to a political discussion. As with many political issues, each party believes they know who’s to blame for issues within the U.S. economy. One theory states that, through things like the Community Readjustment Act and the Affordable Housing mission, the Federal government as a whole should receive the blame. Some economists, however, believe that the U.S. government did its best to make the American Dream of owning a home more accessible to everyone, but banks took advantage of reduced loaning standards and lent out money they knew individuals could never repay.
When it comes to the conservative opinion, individuals believe the federal government caused the housing bubble. The argument stems from the original switch from “laissez faire” economics to a more regulated economy. This shift began earlier, but was first implemented in policy via the Community Reinvestment Act of 1977. Although the act did not receive proper regulation until the early 1990’s, in 1995 the regulators of this act created new rules in order to determine which banks were meeting CRA standards. This lead to the encouragement of banks to have ‘creative’ lending practices in order to allow individuals to qualify for the loans they desired. This encouragement resulted in “the share of all mortgage originations that were made up of conventional mortgages (that is, the 30-year fixed-rate mortgage that had always been the mainstay of the U.S. mortgage market) fell from 57.1 percent in 2001 to 33.1 percent in the fourth quarter of 2006.” Along with this, the percentage of Sub-Prime and Alt-A loans more than doubled.
To further government control of the economy, especially ...

... middle of paper ...

...not afford. The 1977 CRA began the real damage to the housing market shortly after the relaxed standards of mortgages of the Affordable Housing Initiative. While home ownership rose to new heights, so did the defaulting on loans and the drastic decrease of the Federal Reserve Rate. This decrease allowed banks to take out money at a lower cost, thus encouraging them to loan it out at the reduced standards. With that came the increased use of leveraging and ARMs that ultimately caused the spike in housing prices that the majority of families’ incomes could not sustain. While the former CEO of Citigroup, Chuck Prince may have said that, “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing,” he neglected to acknowledge that the government was ‘playing the music’.

Need Writing Help?

Get feedback on grammar, clarity, concision and logic instantly.

Check your paper »

Fiscal and Monetary Policy Before During and After the “Great Recession” of 2008

- ... Despite the Federal Reserve’s best efforts very large financial institutions began to experience some pretty significant trouble and the government had to step in and bail them out (Bailout Recipients, 2014). JP Morgan Chase, Citibank, Bank of America, and Lehman Bros. to name just a few were referred to as “too big to fail.” The nation barely escaped a cataclysmic financial crisis by stepping in to save the banks. As bad as the great recession was, it could have been so much worse. Fortunately for the US social welfare programs were firmly in to aid those impacted hardest by the recession....   [tags: housing bubble, economy, federal reserve]

Better Essays
605 words (1.7 pages)

The Crisis And My Opinion On The Housing Market Development Essay

- In this Essay, I will provide the reader with a concise summary in regards to the role played by the monetary policy in the housing market development. Furthermore, the reader will have the opportunity to fully understand the root curse of the crises and my opinion on the critique of the monetary policy.   What Role Did the Setting of Monetary Policy Play in The Housing Market development. It’s obvious that whenever a disaster struck, there must be a scape-goat. In this scenario, regarding monetary policy, every Tom, Dick and Harry wants to know and as well want to hold someone responsible for whatever that goes wrong....   [tags: Monetary policy, Federal Reserve System]

Better Essays
782 words (2.2 pages)

The 2008 Housing Crisis: A Brief Overview of Causes Essay examples

- ... In the 1990s, the federal government desired more people to own homes in the United States and lenders were urged to make home loans more attainable for a wider consumer base (Melicher & Norton, 2014, p. 168). Banks were now relaxing credit and income standards for mortgage loans. Lending Practices Lending practices were one of the most significant contributors to the housing bubble and subsequent crisis. Up to this point, banks and other lending institutions were very particular about the creditworthiness of the individuals to whom they would lend money....   [tags: market, housing bubble]

Better Essays
1640 words (4.7 pages)

The Global Financial Crisis And The Housing Bubble Essay examples

- Reading about the “Global Financial Crisis” and the “housing bubble,” a lot of things come to mind. I remember sitting in school, hearing teachers and adults talking about the financial crisis, but not really knowing what it meant. I remember hearing about other people’s parents being laid off or having to move, but never experiencing it myself. The little bubble of my world was secure, and no one explained to me what was really going on. Until high school. In high school, I took a financial literacy class....   [tags: Subprime mortgage crisis, Mortgage, Money]

Better Essays
1167 words (3.3 pages)

Essay about The Housing Bubble During the Great Recession

- ... In the voting process, the bill was approved first at the House then at the Senate; no one from Republicans voted for the bill at the House, and no Democrats voted against the bill at the Senate, proving that the bill was largely supported by Democrats but was strongly opposed by Republicans (“About ARRA”). The critics of ARRA point out how it did not accomplish the goals to an extent which Obama initially intended, and that it only put the country into more trouble than without it. They argue that unemployment rate, shovel-ready infrastructure construction projects, poverty number, green-economy jobs, and hybrid car production were all not at the projected level (Reince)....   [tags: high risk loans, stimulus package]

Better Essays
1059 words (3 pages)

How the College Bubble Will Pop Essay

- "Education is our passport to the future, for tomorrow belongs to the people who prepare for it today" (Richardson 382). One of the most amazing things people have dreamt to obtain is the “American Dream”. It is so profound in all the things it can symbolize. It is freedom, justice, but most of all, it is a hope for a better way of life. The immigrants who made the long and dangerous voyage to America wanted their children to have experiences that they never got to experience, one of those things being to have an education....   [tags: college cost, education demand, college bubble]

Better Essays
1809 words (5.2 pages)

The Role of the Community Reinvestment Act on the 2007 Housing Bubble Collapse

- The Role of the Community Reinvestment Act on the 2007 Housing Bubble Collapse The reality of the worst financial crisis in the last 80 years has led to wide speculation of its causes. While a plethora of theories have been offered, none have been as persistent and as patently false as the assertion that the Community Reinvestment Act of 1977 played a significant role in the housing bubble collapse. Critics of the Community Investment Act (CRA) argue that by pushing banks to meet the credit needs of low-income borrowers, the law forced lending institutions to take on riskier loans that proved to be fiscally irresponsible....   [tags: Economics]

Better Essays
1664 words (4.8 pages)

The Effects of the Bursting of the US Housing Bubble on the European Union

- The bursting of the United States housing bubble during the period of 2006-2007 had triggered the 2008 financial crisis which also spread to the European Union zone. Many major European banks, many of which had significant holdings in the American market, started to crumble, followed by bailout requests, initiating a subsequent crisis that led to the Eurozone crisis. The combination of government debt crisis, a banking crisis, and further worsen by a growth and competitiveness crisis had thrown what could probably the biggest challenge faced by the enlarged Union at the dawn of the twenty-first century....   [tags: global financial crisis 2008]

Better Essays
1354 words (3.9 pages)

Essay about The Global Financial Crisis of 2007

- The 2007 financial crisis, a “once in a century event” a crisis congruent to The Great Depression, has continued to puzzle scholars and economists alike. A crisis of American origin, had the ability to spread rapidly across the world and affect both developed and emerging market economies simultaneously. It is a trite but no less true observation that a lack of a global system of regulation was a main cause of the inception and contagion of a crisis on a global scale. An analysis of the preceding events reveals the global financial crisis as complex by which underlying systemic flaws manifested in the context of an increasingly integrated, global financial market....   [tags: US housing bubble]

Better Essays
1603 words (4.6 pages)

GPS Safety Bubble Technology Essay

- Although Global Positioning technology has existed since the mid 1970’s, some of the most significant advancements have taken place within the last five years. In recent months, studies have been conducted by NASA and other institutions concerning the use of advanced GPS technology in both computer controlled flight of commercial aircraft and the establishment of “no-fly safety bubbles” around designated areas and buildings. In essence an aircraft’s computer system would override a manual command and not allow the craft to enter these designated areas....   [tags: Safety Bubble Technology]

Better Essays
1713 words (4.9 pages)