Jay Midnyte

We are constantly told that the reason for the real estate collapse was banks lending money to buyers who could not afford to pay the money back. This might be the first time in world history that banks lent money to people with no intention of ever getting it back (that I know of). Why did the banks suddenly feel the need to make sure they could get as many people into homes as possible? Why did the banks NOT expect to go out of business if they lent their money and didn’t get it back?

The media pounds it into our heads that this financial mess is the result of a real estate bubble. However, they usually find a way to insinuate that the people who took loans they could not afford to pay were the cause of the crisis. How did the bubble occur in the first place? Why did real estate prices rise so quickly?

The culprit is the Federal Reserve. They consistently lowered interest rates for years, allowing the banks to borrow money from them at an extremely low cost. Basically, these banks then took the easy money and lured prospective home buyers with teaser rates and interest only payments with very little money down that allowed buyers to have great houses for dirt cheap. What the banks did not make clear to these buyers is that the low payments would reset to “normal” market levels within a certain amount of time and that this could mean double or triple the initial monthly payment. Even if they did, maybe the buyer decided to take the risk anyway, betting on their finances being the same in the future or better. Why not? These were the boom times, the inflation of the bubble. The new home owners, many of them first time buyers, lived the American Dream for a short time until it all came to an end. Their $400,000 mortgage with a $1,200 monthly payment reset to a monthly payment of $2,000! Combine this with a concurrent rise in gas prices to $3, $4, and $5 a gallon and the resulting rise in grocery prices and people simply could not afford their new monthly house payments.

The wave of foreclosures began and millions of Americans lost and continue to lose their homes. Rising unemployment and under employment continues to contribute to the record amount of foreclosures. The question remains… Why did the Federal Reserve bring interest rates all the way down and supply the banks with cheap money to pump into the economy and inflate the bubble in the first place? Do the Federal Reserve economists NOT know the effects of their actions? How come the banks made these loans knowing they would eventually lead to foreclosure? Did the banks know beforehand that they would be guaranteed American taxpayer’s money to ensure they do not go out of business? What was the Intent of the Federal Reserve and Wall Street banks when they teamed up to create the housing bubble?? Maybe the banks knew all along they would get their money back, 100 times over.