This is how former Fed Chairman Alan Greenspan, the Bush Administration, US regulators and rating agencies helped create the housing bubble and the subsequent financial crisis:
- Soon after 9/11, in a panicky mood, the Fed moved swiftly to stem any disastrous impact on the US economy by lowering the Fed’s rate to near ZIR (Zero Interest Rate) and parked it there for the next five years.
- Banks, usually relying on depositors’ money to be recycled into loans and financial services, such as mortgage loans, suddenly found themselves holding an empty bag, as rich folks and people with disposable income shied away from low-yield CODs, and began investing in stocks, bonds, and other high-yield investments like Hedge Funds.
- The banks, under the cover of the deregulation policies espoused by Bush, began looking for other (dubious) ways to make money, and before too long, they came up with a new model of mortgage lending, whereby everybody could make a fortune.
- The Federal Government regulators turned a blind eye on the risky business and State and local authorities were forced to look the other way. That big departure from conventional lending, which has become known as sub-prime and Alt-A mortgages, is what is now making millions of Americans lose sleep at night.
Here is how it was all concocted by greedy bankers, realtors, and appraisers:
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