Our recession-causes

Our recession-causes - Our recession How did we get here...

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Our recession How did we get here ? Part of the problem was your beautiful house
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Housing prices The price of homes had been rising steadily throughout the 1990s (from 1997 to 2006 the price of the typical American home rose 124%) More and more new homes were being built creating jobs, even during a small recession in 2000-2001 1.7 million new homes were built in 2005– 622,000 in 2008
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Government policy helps The government either encouraged (or at least didn’t discourage) banks from lending money because it wanted to increase the # of Americans who owned their own homes (64% in 1994 to 69% in 2004) The government also liked the jobs being created Government kept interest rates low Foreign investment flowed in
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Subprime loans People who traditionally couldn’t buy homes (not enough income, not enough savings, bad credit) began to buy homes People began to buy second and third homes as investments Not all of those people were considered a good risk – banks gave them loans at higher interest rates or with Adjustable Rate Mortgages– these loans were called subprime loans
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Why would banks make these loans? The higher interest rates were more profitable If the investors defaulted and the bank foreclosed on the home, the house’s value had likely risen in the meantime (because housing values kept rising) and so the bank could cover its investment
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This note was uploaded on 11/27/2011 for the course HISTORY 103 taught by Professor Livingston during the Fall '08 term at Rutgers.

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Our recession-causes - Our recession How did we get here...

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