Secondary Research / Katie Morrin

https://www.theatlantic.com/business/archive/2014/05/house-of-debt/371282/
In their book, House of Debt, Sufi and Mian provide evidence that it was the inequality in debt and the private sector going after low-income homes that caused the 2008 Financial Crisis.

https://www.forbes.com/sites/stevedenning/2011/11/22/5086/#674eaef5f92f
This article is pretty bias, but it recaps how it was the private sector and not the public sector who caused the Financial Crisis. It’s an article that challenges others who say it was the government that caused the recession to begin.

https://www.youtube.com/watch?v=Z9EOna3g6BQ
An overview of what were the causes of the Great Recession by a channel called the Econphiles. The video helps put things in simple terms.

 

History: What Caused it? / Secondary Research

Overall, we found that the widespread proliferation of subprime and predatory loans, failings of various forms of oversight and transparency, and a lack of individual responsibility all contributed to the creation of the housing bubble and the scale of the market crash.

 

Katy Koetting, Samantha Wells, Leah Bailey, Katie Morrin, Gaby Vinales

History_SecondaryResearch

Reading Response/ Katie Morrin

 

The Financial Crisis was one of the worst economic crisis in U.S history. It is often compared to the Great Depression because it globally affected many countries on a large scale. Many people lost their jobs, houses were foreclosed, and businesses went bankrupt. While the county is still trying to deal with the fallout, people wonder exactly what caused the crisis to begin in the first place. From what has been written, there are multiple reasons for the recession, while the private sector seemed to have a larger part, the failure of close regulations allowed for big banks to do what they please and fuel their greed.

The first article “Wall Street and the Financial Crisis: Anatomy of a Financial Collapse” is a two-year study crafted by the U.S. Senate Permanent Subcommittee on Investigations. From their study of several case studies, it was concluded that the Great Recession was due to multiple facilities and their need for profit or failure to comply with regulations. While it can be argued that large banks such as Washington Mutual were the largest contender, other facilitators also had a hand. Washington Mutual sold their high-risk mortgages to investors knowing they would make a ton of money on Wall Street. The loans often were qualified to borrowers even though they were unable to afford the rising interest. And because there was no down payment or needed documentation, under qualified homeowners still purchased the mortgages making Washington Mutual and other banks like it a bunch of money. The Office of Thrift Supervision was supposed to regulate practices made by banks like Washington Mutual. However, as far as OTS was concerned, wrongdoing amongst the company was supposed to be solved internally. This backward logic allowed big banks to continue their offerings of high-risk loans without negative fallout. Even with the promise to correct issues identified, Washington Mutual continued to abuse the system and OTS refused to take any executive action. On top of this credit rating, agencies were pretty much bought out by big banks and continued to give AAA ratings. This made investors believe that the mortgages offered to them were sound and safe. It was all created in a way to make money for all of the agencies which backfired once homeowners began defaulting on their loans. This stopped the flow of money and caused businesses like Washington Mutual to be bought up by other banks.

The second article “The 2008 Housing Crisis: Don’t Blame Federal Housing Programs for Wall Street’s Recklessness” expands further saying that the blame for the crisis was due by the greedy hands of the private sector. The federal agencies such as FHA, Freddy Mac, and Fannie Mae were not to blame for the fallout. The article issues that the two agencies actually provided the least amount of damage and helped allow lower income families to become homeowners. They also provide proof that loans offered by federal agencies were least likely to default. If anything it was the fault of other large banks and the change of the economic environment that forced these agencies to purchase high-risk loans for their investors. It would be unwise to put the blame on these agencies as this could result in negative housing regulations in the future. If anything this article just provides more proof that it was the big banks and not the government that caused the Great Recession.

Both articles have an interesting perspective on what really caused the Financial Crisis. From what I have gathered I believe it is mostly from the private sector. However, the government failed to take executive action even though it was known the big banks were abusing the system. If the government had taken swifter action then perhaps the crisis wouldn’t have happened in the first place. That being said the big banks definitely attributed in large part. It was all fueled by greed.

Outside Source: The Causes and Effects of the 2008 Financial Crisis