Below is a great video explaining much of the so-called credit crisis and how the government and the banks have destroyed the American economy through a series of actions, exhibiting both fraud and incompetence. It is a highly recommended video for an overview of how Wall Street and Washington preyed upon Main Street to inflate the housing boom and spread the risk around the world.
Notice how the entire system is set up by the Federal Reserve System, with former chairman Alan Greenspan artificially lowering interest rates after the dot-com bust and the September 11, 2001 downturn in the market. Banks went crazy borrowing from the Fed and other banks, and used that money to borrow more money, with the malinvestment gravitating to the housing market.
The securitization scam is also well explained, as well as how the rising value of home prices encouraged lending to borrowers who could not afford to make the payments. Once upon a time, only prime mortgages that investors could reasonably expect would be paid as agreed were securitized. But when demand for those types of securities increased and no more prime borrowers could be found, subprime loans were originated and bundled.
In order to meet this rising demand for mortgage securities, Wall Street poured money into the housing market. Loan originators were able to create new types of mortgages with none of the safeguards of the past — checking income and employment, for instance. Even people without jobs or money were sold the “American Dream of Home Ownership,” also termed “fraudulent inducement of debt.”
The Ponzi scheme lasted as long as home values kept rising. Foreclosure could be avoided, in most cases, by selling the home. And when home foreclosure could not be stopped, the lender was able to turn the property around and list it on the market for an even larger, quicker gain on the investment than would have been expected if the owners had paid off the mortgage over time.
But with more people who never deserved mortgages being approved for them, more defaults were inevitable. And more defaults meant more houses would be listed on the market, as well as more banks attempting to reduce the number of people getting homes that would default. This began the collapse of housing prices and the freezing up of consumer credit. The preying upon a nation has lead to the bankruptcy of the entire world financial system.
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