The Financial Crisis Of 2008 And 2009 Essays
While some people blame financial deregulation and the private sector’s greed as the sources of the problem, it was proven to be misguided monetary and housing policies that were the blame for the crisis. Thoughtlessness and miscalculations made matters worse for certain financial institutions during this timeframe.
The rise in unsafe mortgages to underqualified borrowers was encouraged by the Federal Government. The Department of Housing pressured lenders to extend mortgages to borrowers who in the past would not have qualified for a home loan. Government supported lenders, “Freddie Mac and Fannie Mae, grew to own about half of the U.S. $12 trillion mortgage market. Congress pushed them to promote affordable housing through expanded purchases of nonprime loans to low income applicants.” (DownsizingGovernment.org)
The fuel to the fire of these risky mortgages was provided by cheap money policies of the Federal Reserve. After 2001, Allan Greenspan slashed the federal fund rate from 6.25 to 1.75 percent. In 2002 it was reduced again and by 2003 it reached an all time low of just 1 percent. This created unnecessary liquid assets and generated a huge demand bubble.
“The Department of…