🏡⬇ Housing Bubble and the Great Recession | 2008 Financial Crisis

🏡⬇ Housing Bubble and the Great Recession | 2008 Financial Crisis

Without a question we can all remember the
financial crisis of 2007–2008.
Perhaps you learned of its effects the hard
The media told us that greed and excessive
risk were responsible.
Some economists, however, point out that blaming
greed for the crisis is like blaming gravity
for aircraft crashes.
The real cause runs deeper.
Both Republican and Democratic politicians,
joined by mainstream media all at once picked
free markets as the usual suspect, claiming
that the only solution was more regulation,
more government intervention, and more debt.
To use Tom Woods’ parallel, everyone seemed
to be looking for whomever was breaking all
the furniture, pretending not to notice an
elephant in the center of the living room.
The Fed and the government intervention were
the elephant.
The causes of the crisis:
To some extent we are all aware that the immediate
cause of the crisis was the bursting property
bubble in the US.
However, people seldom look for the origins
of the bubble itself.
What prompted consumers to suddenly start
speculating excessively in the real estate
What caused this massive tide of new real
In order to explain this, once again we need
to draw from the Austrian business cycle theory.
A short reminder: Austrian economists consider
interest rate to be meaningful just as any
other price.
When the interest rate is determined freely
on the market, it conveys information about
the quantity of savings necessary to realize
investment plans made by entrepreneurs.
However, once the central bank floods the
market with new money that is disconnected
from real resources, the result is an artificial
reduction of interest rates.
The entrepreneurs mistake these artificially
low interest rates as a sign of higher amount
of saved resources than there actually are.
Based on this misinformation the entrepreneurs
make long-term investments wrongly assuming
their future profitability.
This is how the artificial boom begins.
But in reality the economy wildly differs
from this view.
There is actually less resources than what
is required to complete all investments at
assumed costs, and to make them sufficiently
profitable upon completion.
When this reality becomes apparent, the bad
investments go bust.
The best possible course after the crash is
to allow liquidation of the bad investments
as quickly as possible, freeing misallocated
resources such as raw materials, capital goods
and labor, thus paving way for the reallocation
of these resources into viable projects.
Let us illustrate this point by using a story
by Peter Schiff: Imagine that you run a small
town restaurant.
The town is briefly visited by a circus.
Suddenly, you see a large influx of customers.
But you fail to see the connection between
the circus and a sudden spike in demand.
To you, it is just a beginning of a permanent
You start to invest in your business.
You hire more workers, add a new wing, and
some tables.
All seems to be working, until finally the
circus takes off to another town.
It turned out that your decisions were based
on false stimuli.
When it turns out that you have made a mistake,
then you should immediately dismiss additional
staff, try to recover and liquidate at least
some of the materials used in expansion, and
sell the new furniture.
So much for the theory.
Let us see how it looked in practice.
After the dot-com bubble burst in 2000 and
after the 9/11 attack, Alan Greenspan, the
Chairman of the Federal Reserve at the time,
decided to revive the economy by lowering
interest rates from 6.5 percent at the end
of 2000 to 1 percent in June 2003.
The rates remained at this then historic low
throughout the entire year.
The M2 money supply rose by 51 percent, from
around 4.9 trillion dollars at the end of
2000 to around 7.4 trillion dollars at the
end of 2007.
In this way, the Fed by, in quotes, “saving”
the economy from one bubble going bust, has
inflated an even bigger one.
We can, however, wonder what caused the real
estate market to be most affected.
Why did the new money end up there?
To find out, we need to consider government’s
actions during the boom.
We should start with a thorough examination
of two huge, government-sponsored enterprises
(GSEs): Fannie Mae and Freddie Mac.
Both of them were granted special privileges
by the government, such as tax exemptions,
favorable regulatory treatment, and an unlimited
line of credit from the Treasury.
What were their supposed functions?
Usually a mortgage loan taken in a bank is
repaid by its client to the same lending bank.
However, the lender may sell such a loan on
the secondary market to an institution such
as Fannie Mae or Freddie Mac.
In this way the bank reclaims its lent capital
and frees itself from the loan default risk.
In turn, the two GSEs aggregated hundreds
of such loans from various geographic regions
into packages, called mortgage-backed securities
(MBS), and sold these to other investors.
The bank that sold the loan to one of the
GSEs now had idle money available for another
Obviously, such practice allowed for much
greater credit creation and justified taking
more risk when granting loans than would be
possible without the two GSEs.
Having the law of supply and demand in mind,
it is not difficult to conclude that the result
of very easy access to mortgage loans would
be an increase in real estate demand and,
consequently, in real estate prices.
Both Fannie Mae and Freddie Mac had no problems
with raising capital for their activities,
because the market was convinced that the
government would not let its GSEs fail.
Their bonds and government bonds were treated
as equal.
The result was that by 2008 both GSEs owned
more than half of all US mortgage loans.
Senator Ron Paul rightly warned in 2003:
“This is because the special privileges
granted to Fannie and Freddie have distorted
the housing market by allowing them to attract
capital they could not attract under pure
market conditions.
As a result, capital is diverted from its
most productive use into housing.”
His warnings, however, were ignored.
Loose credit policy
Fannie Mae was pressured by government to
allow people with low and medium incomes to
get mortgage loans that they would not otherwise
The result was lowered requirements for borrowers.
All in the name of the American dream of everyone
having their own house.
The problem was that the banks assess creditworthiness
not out of pure malice, but because it is
actually useful.
The purpose is to reduce credit risk.
The creditworthiness assessment is beneficial
for all parties involved: for the bank and
its depositors (because their funds are safer),
and for the borrower (because it is better
for him not to take a loan he will fail to
Granting risky loans, however, was insisted
upon for political reasons.
One of said reasons was that the American
establishment wanted to solve a problem of
“racial inequality”.
Thus, various government agencies pressed
lenders to grant more risky loans to ethnic
Lenders obeyed, fearing accusations of racial
discrimination that would have cost them large
compensations if they did not.
The legal justification was the Community
Reinvestment Act (CRA) that exposed banks
to indictments for discrimination if they
did not grant sufficient amounts of loans
to minorities.
The goal was simple: force banks to lower
credit standards, making mortgages available
to people who did not qualify before.
Nobody seemed to care that there were specific
reasons behind the ineligibility of these
clients, and their skin color was not among
It is true that banks granted risky loans,
but one must not forget that these institutions
did exactly what the authorities demanded
of them.
Whoever blames lack of regulation for the
crisis, should note that it was precisely
the regulations that forced banks to take
on much greater risks than they otherwise
Artificially stimulated speculation
Due to the fact that the Fed was flooding
banks with reserves, new financial engineering
inventions appeared on the credit market,
such as loans with no down payment.
Loosening loan requirements did not stop with
low- and middle-income people.
No wonder: by loosening requirements for everyone,
banks could earn even more.
Prices rising constantly due to rising demand
and loose credit standards were a breeding
ground for speculation.
People bought houses not only to live in them,
but also to sell them profitably in the future.
When the boom was nearly at its end, around
25 percent of the houses were bought for speculation.
Many people bought the property, made some
improvements and resold it or simply waited
for its price to go up.
Just before the crisis some said that the
more risky subprime loans were the only cause
for concern.
It turned out later that the problem was much
more than that.
The additional problem was that many people
took variable rate loans.
Alan Greenspan himself encouraged taking them.
With variable rate loans, the main risk for
borrowers was having to repay more in the
event of an increase in interest rates.
This type of loan suited people who bought
property for speculation, because they did
not plan keeping it for long.
It turned out that variable interest was more
commonly employed in average-risk loans than
in subprime loans.
When prices peaked, and then began to fall
slightly, the number of real estate foreclosures
No wonder.
Imagine that you bought a house by taking
a loan that originally had a low interest
rate and no down payment needed.
You hoped that the prices would go up, but
it turned out that the bonanza was over and
the prices began to fall.
A reasonable solution was to stop repaying
the loan and let the bank take the property back.
The administration encouraged speculation
and boosted demand in other ways, for example
by introducing capital gains tax exemption
upon the sale of real estate, or tax deductions
for taxpayers with a mortgage loan.
Curiously, a taxpayer was not eligible for
the deductions if she paid for her house in
cash or rented it.
Developers were offered free land and tax
privileges just so they would build new houses.
As you can see, speculative mania was to be
expected, as the government did everything
in its power to make it happen.
Moral hazard
Economist Anthony Mueller said:
“Since Alan Greenspan took office, financial
markets in the U.S. have operated under a
quasi-official charter, which says that the
central bank will protect its major actors
from the risk of bankruptcy.”
Greenspan proved time and again during his
term the validity of this view.
Now, let’s think what would happen if a
financial institution were to be released
from the burden of risk.
Imagine having 1000 dollars and taking it
to a casino, while your rich relative tells
you: “You know what?
Try your best to win, but if you lose, do
not fret.
I will cover your losses.”
Do you think that given such an offer you
would be more or less careful with the money?
Surely, less.
This is what is called “moral hazard”.
It means that institutions with a safety net
from the Fed act less sensibly than they normally
Summarizing the boom period: The Fed provided
fuel for an artificial bubble, and the government
poured it all over the real estate market.
In some ways, every speculative bubble resembles
a financial pyramid.
When prices are disconnected from the economic
fundamentals, there must be an even bigger
sucker who will buy at an even greater price.
But at some point even all the suckers in
the world were not enough.
All speculative bubbles in history had one
thing in common.
They all burst.
This one was no different.
Fearing the rise of inflation the Fed began
to raise interest rates.
Borrowers with variable interest loans began
having problems with repayment.
By 2006, the real estate prices had already
stopped growing and banks began to take real
estates back.
The bubble had burst.
At first, some claimed that it was only a
minor problem with subprime loans.
But it was much more than that.
Soon the real estate prices collapsed.
MBSs that were previously treated as safe
investment started to turn up worthless.
In addition, credit default swaps or CDSs
began to be a problem for companies that insured
lenders against the risk of mortgage loan
One of these companies was AIG.
Some investors who bore no debt at all also
bought CDSs for speculation.
Big financial institutions that were heavily
loaded with these toxic assets got in trouble.
Unemployment spiked.
Many people working in the real estate market
simply ceased to be needed.
Interbank lending plummeted because no one
knew which bank is loaded with toxic assets
and to what extent.
By 2009, the Dow Jones fell from its peak
in 2007 by 53 percent.
Then, in 2008, the bailouts began.
The Fed and the government handed out hundreds
of billions of dollars to rescue and recapitalize
large financial institutions and other companies.
Fannie and Freddie have been nationalized.
As the purpose of this video is not to teach
history, but economics, we shall discuss the
economic effects of the government’s most
visible actions after the crisis.
The foremost reason behind the stipulation
that the government should not financially
support companies that make unwise investment
decisions is that the government uses someone
else’s money to do that.
In this case, the money came mainly at the
expense of the future of the American economy.
In other words, the government became more
Instead, the best course would be to let the
losers lose.
The banks should bear the responsibility for
their investments, as they knew (or should
know) all too well the risks associated with
Propping up bad investments only wastes resources
and harms the economy.
It forces taxpayers to finance and exercise
in futility.
The same resources could be used in so many
better ways.
Consider Lehman Brothers.
It was a huge bank that was allowed to fail.
Amazingly, the world still goes around, and
the sun rises every morning.
Lehman’s good assets were taken over by
other institutions.
When five or ten bad banks fail, there are
five or ten better and more prudent ones ready
to take over.
If there are none, the only conclusion possible
is that they are not needed.
The market hates vacuum.
Some may claim that these institutions were
duped by the government to make errors (that
was actually the case), but it does not warrant
trying to fix a bad situation by making it
even worse.
Of course bailouts did nothing to help and
the recession came anyway.
Moreover, the existing moral hazard was only
made worse after the crisis, because now big
banks could be sure that they will always
be too big to fail.
An attempt at propping up real estate prices
At the outset the government’s alleged plan
was only to make housing affordable for more
But when are people able to afford houses?
Is it when houses are cheap or humongously
True, people who bought expensive houses would
They made their beds, however.
At least they would have learned an important
lesson not to listen to the bureaucrats and
their assurances of the better future.
Just because some people made bad decisions,
other people who acted reasonably should not
be impoverished by new money being created
and pumped into (the) real estate market.
Fannie and Freddie, now fully owned by the
government, announced emergency measures to
help the borrowers whose property was in danger
of being taken back.
Principals and interest rates were lowered,
and repayment terms were extended.
Needless to say, it was horribly unfair to
those who were able to afford houses, and
bought them without any mortgage loans.
Nobody helped them.
But once you bought a house that you could
not afford or took a mortgage loan for consumption,
then you could count on Fannie and Freddie.
This has encouraged people to stop repaying
their loans.
By doing that they got better deals.
In some families it was even more profitable
for a spouse to quit his or her job, because
lower income resulted in better repayment
conditions due to debt payments being limited
to 38 percent of household income.
Asking for a temporary salary reduction was
profitable as well.
The government did everything it could to
enable everyone to afford a house, except
for the most obvious solution: Let the property
prices fall, thus making the houses affordable
without the need to lend unbelievable sums
of money.
Credit stimulus
During the crisis, people who were afraid
of losing their jobs started saving, while
banks cared more about their liquidity and
refrained from risky lending.
The government considered this unacceptable.
The administration started to buy shares in
private banks to recapitalize them and stimulate
Banks were unwilling to lend money blindly,
and rightly so.
Since the source of the crisis was mindless
lending, then surely the cure could not be
more mindless lending.
On the contrary: strict credit standards were
the cure.
As the initial proposal that the government
should buy the toxic assets from banks was
abandoned, it was instead decided to tackle
the problem of insufficient consumer lending.
Secretary Henry Paulson said that “the illiquidity
in this sector is raising the cost and reducing
the availability of car loans, student loans
and credit cards.”
As if the gravely indebted Americans needed
The Americans needed to rebuild their savings
so as to invest again in productive ventures.
Nobody, however, took this into account.
The official reasoning was: We eat a lot when
the fridge is full, but because of toxic food
we stopped filling up the fridge, so we started
to starve.
But if we throw away the toxic food we won’t
have any food left!
So the only way to eat again is to use flavor
enhancers and eat up the toxic food.
Now that we are eating, we can start filling
up the fridge with good food again, and all
turns back to normal.
But in this convoluted reasoning a simple
truth was lost: the toxic food was actually
toxic, and as such it should be avoided, not
True, the brief hunger would be difficult,
and people would have to work hard to recoup
their losses naturally.
But in effect the toxic food would end up
in a trashcan, and the fridge would be once
again filled with good, healthy food.
In essence, the government saw that people
consumed less during the crisis, and concluded
that low consumption was the problem, not
the solution.
Savings consist of limiting present consumption
in an effort to increase future consumption.
Savings are an essential part of investments,
which, in turn, enable greater future productivity
and consumption.
Lowering interest rates to zero and unprecedented
money printing
In response to the crisis, by the end of 2008
the Fed lowered interest rates to zero.
The Fed also started quantitative easing,
or QE.
There were several QE rounds, which is just
a nicer name for inflation.
The Fed managed to bounce off the bottom as
late as December 2015.
The financial crisis of 2007–2008 was caused
by keeping interest rates at 1 percent for
a year and by not allowing to liquidate erroneous
investments in 2001.
We can only guess the kind of turmoil looming
around the corner now that the interest rates
were kept at 0 percent for so many years,
while the market was not allowed to clear
itself completely after 2008.
Last time, the United States still had some
breathing space when it came to going into
Now this option is very limited.
On this topic we recommend reading “Meltdown”
by Tom Woods and “The Real Crash” by Peter
Schiff, which were useful in making this video.
We would love to see you visit our website
at econclips.com.
Please help us in reaching a wider audience
by sharing our videos, by subscribing to our
YouTube channel and by liking us on Facebook.
You will find the links in the video description.

100 thoughts on “🏡⬇ Housing Bubble and the Great Recession | 2008 Financial Crisis”

  1. Wow, what a great informative video. It helps me study a lot, but it also makes me feel awkward because many people still blame free market despite the fact.

  2. Low interest, Toxic subprime loan packages insured by AIG, Predatory Loans to those who were doomed to fail, refinancing by those up to their eyeballs in debt as the value of their homes rose….all that needed to happen was the wave of "predatory" mortgages to fail as one balloon payment after another went into affect. Then the house of cards fell. Rather than force banks to refinance so mortgages were affordable the government bailed out all but one of the Big Banks and GM and AIG. Then the FED secretly gave trillions to the Big Banks who recapitalized and invested in the stock markets and lent to Corporations at low rates enabling them to buy back shares which created a Stock Bubble. Meanwhile home loan rates remained low but the economy cannot support even these rates so the bubble in housing is about to collapse again (which was also helped along by fewer homes being built) which resulted in a RENT Bubble…Meanwhile the Banks and Corporations did not lend enough money to create hyperinflation and the sudden fall in oil prices helped. The real culprit has been the crazy so-called defense spending over the last 28 years. This created huge debt. They are demonizing Russia (no hegemony there) and Iran who could not defeat Iraq in 8 years and we beat Iraq in days. The markets are rigged and the economy is being artificially propped up. If the FED does their miniscule 25 basis pt hike and the new Yuan-Oil currency has any affect then who knows …also if the bond market collapses.

  3. Wow this is exactly what's happening in Australia right now. I wonder if the government is going to bail out the big four banks ? I think I know the answer.

  4. Hank Paulson stole TARP and the federal reserve agreed and doubled downed by buying the assets TARP was supposed to buy! The federal reserve used this theft to continue stealing from the countries future And your bulls-it of course!

  5. The USA does better than most countries. I retired in 2008. Invested 1/3 in Municipal bonds, 1/3 in an annuity invested in stocks, 1/3 IRA balanced funds. We lived well since 2008. Our net worth has increased. We are immigrants from Germany. I am glad we are here and not in Germany. I am questioning a negative view of the USA. WHY? Do you have a crystal ball?.
    I do like your video and subscribed but think the USA will do fine. I guess I am an optimist.

  6. Real Estate has become expensive in recent years across the globe. Society values real estate as a hard asset that has traditionally increased in value over time. Interest rates and capital gains taxes have made it very profitable for home owners. The reality of a massive global real estate crash is unlikely because governments will do whatever they can to protect the wealth of their nations.

  7. will this affect the house prices in the UK as well and if so by how much ?, maybe i should sell and wait to rebuy for less?

  8. Right off the start you made the biggest error of all. You associate the Feds with the Government. The Federal Reserve is not the not Government. Also the banks run the Government.

  9. Nice video.

    There's just one tiny little detail you forgot to mention, namely that all of this is the result of RIGHT WING politics, for the simple reason that right wingers couldn't deliver on their promise of "trickle down economics", because that's something that has never worked and never will.

    Whether it's in the US where Trump and Clinton are BOTH right wingers
    or in Europe, where ALL governments of ALL countries are right wingers
    almost ALL politics almost EVERYWHERE in the world is trying to enrich the rich even further while desparately searching for ways to keep average people calm.

    In the US about 80% of all people have discovered by now, the American dream has become unreachable for average people and the ONLY thing right wing authoritarians could think of, how to prevent the bottom 80% from launching civil war was to give everyone an own house, even if they couldn't afford it.

    So for about half of your argument I agree, it's authoritarian government that causes all these problems, but I really feel the need of pointing out that this is exclusively RIGHT WING authoritarians.
    Therefore the solution is in libertarians, but it has to be LEFT libertarians.

    There even is an example for a left libertarian government that works perfectly, where the whole world knows how great it works: Switzerland.
    What you might not know is, how Switzerland achieves this, which is a completely powerless government, because absolutely ALL decisions are made in referendums, where the general public makes ALL decisions and politicans are there for nothing more than executing the will of the people without ANY power of alternating or interpreting this will of the people.

  10. Greenspan = Typical Rich Jew. Jews own and run the Federal Reserve. The Jews stole most of the gold of the USA and Germany. I bet they stole the gold of the English via the Jew owned Bank Of England. I rest my case.

  11. Wow – Obama economics at it's best – Communist ideas don't work in a free market – Why does the US government keep trying to prove otherwise? Because of the infinite money machine called the Federal Reserve (that is not owned by the US Government).

  12. What about surplus funds from export driven economies pouring funds into the US financial system, lowering long term interest? What about the dual mandate the federal reserve has to promote full employment and price stability (contradictory set by congress), what about the tax cuts for the wealthy? You think wealthy people spend their money or invest their money?

    Sure the Fed played its role, but I’d hardly put it all on them. Bubbles have occurred even before central banking.

  13. the correct solution to when the government says you need to give access to minority groups for housing loans that doesn't mean you should put people in homes they cannot afford. A bank should work to improve on affordability not pursue restrictions. #millienials

  14. Corrupt appraisals inflated the values of the houses, consumers rolled their car loans and credit card debit into the mortgages and the loan issuers didn't question the value of the houses. I saw this in Florida and Colorado. Additionally gasoline prices spiked right at this time also so the fools driving large SUVs were getting soaked with fuel costs. They were not able to pay for all of their expenses. Broken ARM loans were also a problem but the spike in the petroleum market was a much bigger factor than it is given credit.

  15. Excellent production work. Bravo. I’m in the concrete pumping industry in Southern California and I lived through that experience and let me tell you it was very ugly.

  16. Its way too specific that any one should ask themself if its true or there trying too excuse the bank from fraud

  17. Austrian school is dead. Productivity gain and markets no longer have connections. (Robotization, globalization)
    Property price is rather linked to proper age structure of the society. If there is a country that is full with retired people, property market is shitty without speculation. If you take any country with huge young population property appreciate without productivity growth.

  18. The sheep affect. Same with anything, just like bitcoin and all other "get rich quick" schemes. You start hearing from others how they are making more money than you – in this instance by putting money into real estate and over time everyone starts doing this. It starts off with those who actually have spare cash, then those that can just about do it and then you have the idiots at the bottom spending $2 for every $1 they actually have. All it takes is for interest rates to change, drop in confidence, new opportunities drawing investments away, etc and pop. The bubble bursts. One thing I have learnt is no one likes feeling left behind, especially when it comes to success and money – so people end up copying eachother on hearsay rather than knowledge. At most, they look at a couple of charts and read up on some lucky success stories but actually have no idea what the hell they are doing.

    Golden rule; invest in what you can afford to lose. Be realistic and carefully consider the potential down sides as well as hoping to benefit for the upsides of any investment. It's easy to forget the negatives when the positives are being forced down your throat all the time. A bit like being sold a new car by a salesman – yes, its cool, shiny, costs nothing to maintain for 3 years – wow! Oh wait…the negatives – you never own it, you have to abide by their rules, you have limited mileage.

    Live within your means people.

  19. There is an important omission in the video. The lack of regulation of credit default swaps (CDS) greatly contributed to the world wide financial melt down. CDSs are insurance contracts, but regulations that are placed on insurance companies (such as assets to back up policies) were forbidden by law to apply to CDSs. This is one case where the free market is to blame, and not government regulation.
    To add insult to injury, the government bailed out owners of CDSs at 100% of face value when sellers of the contracts were unable to redeem them.

  20. The risky loans were all part of the deep state plan to destroy America. They knew what would happen and it worked like a charm. Don't underestimate these globalist. Time means nothing to them as long as they get there.

  21. Fed creates money out of nothing, loans it out charging interest (wealth transfer), banks foreclose on homes with the most equity in them stealing or transferring wealth back to them. All this with money created out of thin air. Biggest scam in history.

  22. Much of the housing built during the boom years was not only overpriced but also more house than you needed. We will need smaller and more affordable housing.

  23. As for investment, usually a big technological breakthrough or a jump in the education in the labor force has ended a slump. I don't see either of these in 2018.

  24. Trump's corporate tax cuts will be influential in predicting corporate survival in the next coming slump. If the cuts are used well, the company will survive. If not – bye bye bye!

  25. People the "community reinvestment act"was legislated in 1977. Long bow to say it was responsible. Who forced the banks to create Mortgage backed securities or SIVS? No-one? Could be lack of regulation?

  26. Banks made a lot of profit on bad loans because they chopped them up and sold them. More loans meant more money. Government regulations may have played a minor role and low interest rates enabled the banks, but the main culprit was the false sense of security caused by the "endless" rising housing market and credit "swaps" in which everyone promised to pay everyone else if things went bad… a daisy chain of dark derivatives that fell like dominoes.

  27. Yet movies like The Big Short solely blame bankers and Wall Street for the 2008 financial collapse, conveniently ignoring the underlying Government regulation aimed at social welfare that initiated the fiasco. Don't get me wrong, I'm not defending the banksters… But they only capitalized on the insane left wing policies to begin with. America is in a very bad position… Bring torn apart by the left and right… Both of whom have embraced the very worst of their respective ideologies.

  28. You completely missed the failure of the Ratings Agencies to junk the value of the resold loans which would have avoided the entire crisis. Nice fx and bgm.

  29. Something that I am quite confused. In 4:30 "the lender may sell such a loan on the secondary market to an institution such as Fannie Mae and Freddie Mac." But in Khan Academy they said that those mortgage loan were sold to investment bank i.e. Lehman Brother and then transfer to "Special Purpose Entities" to make them become MBS. What is the different between them? Is it the same thing? What is the proportion between this two type of MBS?

  30. So what about predatory lending? yeah the requirements may have been easier but loan officers, mortgage companies and banks all were ok with knowing these people couldn't pay the ARM rates once it runs out. Truthfully I think greed was the problem not the regulation. Mortgage banks eventually sold the loans to larger institution such as Fannie Mae and Freddie mac and washed their hands of it. I also though the bank bail out was a mistake but at the same time, the world is dependent on the US financial system. If the US didn't bailout the banks, chances are the world would regulate against US dependent. This video has a very conservative view but I think Obama's approached made it better and got as out of a recession rather than be hit with a full blown depression. I'm a conservative but I see that we needed to help those who made the mistake, unfair for those that did the right thing but overall it helped everyone.

  31. Great content EconClips, keep going ! I wanted to know if u can make a video explaining shell companies and tax heavens. Thanks

  32. drmnys perhaps I was not clear; banks found a way to make money on bad loans by selling them to others, relieving themselves of risk, and added "insurance" with swaps. It would have happened without so called "corrupt government's left wing policy" because banks found a way to make a lot of money using new unregulated instruments. Plus removing the "post- depression" government barrier between banks and investment meant that banks could use your deposits and your money to speculate in anything. The Volcker Rule should rule.

  33. Since we Canadians thought we were so "smart" to stimulate or housing market at that time in order to create a "wealth effect" and to promote consumer spending through rising home values, we are NOW faced with a housing bubble that is worse than what the US experienced, particularly in our most bubbly cities of Vancouver and Toronto.

    If you'd like to find out more and/or share your own "News and views" on our situation here, feel free to join with the other 579 members who have joined my "Metro Vancouver Housing Collapse" FB site since November, 2017.

  34. Informative video but not true if your blaming minorities for the housing collaps. Lehman Brothers collapsed because they were leverage 16:1. It would only take a few mortgage to fail for them to blow up. You also left out 'Mark to market' rules so that you can sell gold a useless metal.

  35. Not duped. Bill Clinton signed legislation that assured their destruction. Stupid socialist law makers learned that paybacks are hell. The socialist boys got their pants pulled down in public. Of course middle classAmerica suffered ,the rich socialist law makers got rich.

  36. Great video. I wonder why people doesnt stop to pay attention to what happen on a higher scale

  37. 6:50

    EXACTLY why people have a problem with social justice. It's forced, backed by threats, and considers feelings over basic facts. All of this will eventually cause bad shit to happen.

    Sincerely, your local idiot anarchist
    Lance Clemings.

    Generic 'fuck the goobernment!' statement also. 😛

  38. I think it's actually the crisis of 2004-2007 pre OBAMA. Obama cleaned this shit up. Dont be putting 2008 on here. Also blacks caused the crisis? Lol stop it. You do realize that EVERY RACE has that group that wouldn't qualify for a loan, low income whites included.

  39. Your explanation and your examples was briliiant. I actually took 40 minutes to understand as I was repeating it to understand your accent. But it was very good . Thank you for the good work

  40. the fallacy in this explanation is assuming that the government and its Banker constituents are separate entities. when in fact they are not

  41. 2007 2008 i never recovered. things are little better but its been 11 years. and now that we have trump the people that hate him cant make things better . it would mean he did what others couldn't, so we suffer some more.

  42. This video doesn't explain why investment banks like Bear Stearns and Lehman Brothers, two of the most visible failures of the housing bubble and which were under no legal obligation at all to fund flaky mortgages, did so anyway. They were not beholden to the CRA the same way commercial banks are. The fact that they're not called out explicitly in this video for analysis is suspicious, in a "I have a specific agenda" sort of way.

  43. Ads from the early 2000's: "buying your own home is the American dream", "Why throw away money on rent every month? Be smart, buy your own home.", etc. On-line investments sites opened up & claimed that "investing is safe & easy now" & "anyone can get wealthy now – it's not an exclusive club anymore". Then they "stole" homes back (never giving the person a chance to hold on to the property), & they "bet" that average investments would fail & then made them fail. Worst of all, when they got caught, the weren't required to return $ and homes to people – they paid big fines to the government, but never had to make things right for the people who's lives they ruined. I'm convinced that if they started making banks or other big entities pay restitution directly to the people they hurt, it would be a way more painful punishment to these types of people (they don't seem to believe that everyone deserves to have enough). It would do more to prevent these things from happening than making them pay big fines, because that doesn't seem to bother them.

  44. Wtf is he saying…! Damn u should make video so that even non economic background person can understand

  45. the system is so artificial is a speculative rollercoaster. everyone is encouraged to borrow and spend. banks can just print money to lend at low interest rates. system is not going to change any time soon.

  46. Wow!! Didnt know my BLACK ASS caused the financial crisis of 2008. 🤔
    It had nothing to do with predatory lending, banks who sold risky loans to Fannie, and greedy mortgage brokers making points on the back end for adjustable rate mortgages .🙄

    FACT:Before the Government "made" banks lend to blacks this behavior was already in place. Furthermore your video unapologetically equates one being black to being a RISKY LOAN as if that is factual.

    Wow what a joke😐😐😐

  47. Blaming the Fed and the money supply is nonsense. Blaming Fannie Mae and Freddie Mac is spot on. They are not mutually exclusive. The GSE's need to be dissolved and the government should get out of the housing market. Entirely too much moral hazard was created, and the GSE's were about as brilliant of an idea as Social Security.

  48. Explain why this was racialized? The banks targeted low and middle income folks irrespective of race…not just minorities. Poor and middle income whites were among those who the government was trying to ensure had access to the “American Dream”— the subtle racist ideas on the video likely escapes the average listener who lacks critical thinking skills, but I’m calling it out! #dobetter

  49. Lots of white people lost their homes along with everyone else. Question, why did the government lend all that money to build houses? Was it because they wanted the houses to sit around empty, no I don’t think so. It was greed, they were determined to fill there pockets by any means possible including selling people homes that they could not afford.

  50. This is so basic that it should be taught in every MacroEconomics course in America, but still people bury their heads in the sand and blame the supply side of the Economy for being "Too Greedy" or "Corrupt" with all the enthusiasm that vague contrarian populism can muster. If you lower interest rates at times when they would naturally be much higher…people are going to assume that there is more in physical resources available than there actually is. This will produce a crash. Guaranteed. It's not that difficult to understand…

  51. Good video, but tip, you may want to slow down ur talking a little as things go buy too fast, esp in this video with detail and all.

  52. Throwing in your own personal opinion that some were quitting their jobs so they could get the break in not having to repay back the loan on their home. So glad that you knew what all Americans across the country were doing during that time. People were LOSING their jobs ALL OVER the COUNTRY during that time. I know because I was laid off from my job and lost all of my investments, others around me lost their jobs and some states had problems paying unemployment payments to people because states were having problems meeting the demand of high unemployment. Stick to facts as to what actually happened instead of assuming everyone is lazy and wants free passes.

  53. I think you have mis represented the role of CRA and regulation. The banks brought in great and unchecked risk into the market and the economy and tax payers paid for it. Why were these externalities not taken into account in building these products and making these trades? The banks and the “free market” played a major role in destabilising the US economy and the global economy. But they have not paid for it as yet.

  54. Very well done, I would like to see Econclip video on the fact that corporations do not pay taxes only individuals pay them. Corp only collect them.

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