OPPapers.com

Housing Dilemma

Page 2 Our Economy Housing Dilemma Several people are wondering who and how this could have happened to the housing market. So let’s back track a little and see we’re it began. A major crisis was the terrorist attacks in New York and Washington in 2001 this was not only scary but unthinkable. Under emergency powers, Mr. Greenspan instructed the Federal Reserve to inject new liquidity some $40 billion worth in a matter of days to stave off any panic selling. Our economy plummeted quickly and Greenspan and other government officials worried the global financial economy would spiral out of control. So in 2002 Alan Greenspan panicked and cut rates meaning mortgage rates time and time again all the way down to 1%. He feared the United States would be slow to recover. But we were quick to recover and stabilize. He realized he’d overreacted to the crisis by cutting the interest rate to much, and then in late 2005-2006 he rapidly raised rates. As Greenspan and Co. lowered the Federal Funds Target Rate from 6% to 1% banks borrowed cheaply from the Federal window, and invested in risky mortgages. It goes without saying the housing market took off like a rocket. In 2003, the year of the great money flood, when the Federal Government cut rates to only 1% the subprime lending went from 4% of total lending to more than 10% and that’s in one year! During this time there was closed private meeting with Publisher. Were Greenspan warned investors and also had written a letter to Ben Bernanke and the current Federal Chairmen as to set up a “crisis center” to anticipate global problem that might lie ahead which included the currency crisis housing collapse, another terrorist attack, or maybe rise inflation. During all of this there was a few or several individual that would see a loop hole in the system/housing, and find a way to write loan that were toxic. By the time Greenspan noticed it was too late. These mortgage companies and banks were writing loans left and right. They...