What a mess we are in! Whose fault is it anyway? It's hard to say. I've heard many possible causes and of course there are those with agendas. One conservative man I spoke to recently of course blamed it on minorities. We minorities of course are responsible because we want something we cannot have, homes. The government of course decided to somehow allow us minorities to think we can own homes. Thus, according to this person, it's the government's fault for permitting minorities to believe they can have something they should not have.
Naturally, I disagreed. So, I've looked into this issue quite a bit. The causes seem to be complicated but it would seem that it started with lenders trying to make more home loans. For years, home loans were strict, with people having to come up with down payments and closing costs to purchase homes. Further, people had to be able to afford mortgage payments. With all those restrictions, it was difficult to increase the number of home buyers. Then came 911. After 911 there was a terrible financial crisis and then Federal Reserve chairman Alan Greenspan intervened in ways to make housing more affordable, such as decreasing interest rates. This, I believe made lending possible to people who are not as economically worthy of purchasing homes, so bankers started lending to more people. Soon this mushroomed into lending to high risk buyers and Wall Street started buying loans like crazy, and created CDOs, a type of Asset Backed Security that are based on pools of assets. These were traded heavily and given high AAA ratings by credit rating agencies like Standard and Poor's and Moody's, even when they didn't deserve it. Unfortunately, as people started purchasing homes, home prices skyrocketed and did so at a rate way above income increases. In the mean time, unscrupulous lenders started advertising refinancing homes and people were taking out second and third mortgages with adjustable rates. When rates increased above what people could pay, the bubble burst and then came massive foreclosures and Wall Street no longer buying mortgages. This led to lenders going broke and CDO investers going broke, even investers in Europe and the Far East, all of whom trusted the American homeowner to continuing paying debt, that is if they even knew what CDOs are. Next think we know, some of our big banks went under and here we are baling out these massive financial institutions.
Of course I am not an economist and I may be wrong in my view, perhaps even naive. However, I do know one thing. Given the opportunity, investers will create ways to increase income, including CDOs and cheap loans. On the other hand, people want to live the good life, and normal individuals will if given the opportunity spend more than they can afford. If we are to get out of this crisis, we all need to be more responsible, spending only that much we can actually afford, and avoiding credit whenever possible. This is hard because it is not easy to see the wealthy flaunting their wealth in front of the poor. When I was in college and didn't have a car or had an old broken down car, I enveyed the kids with good cars. I know it's hard. However, if we learn to re-define wealth by focusing on what's free or inexpensive, we can live well. We don't have to go out to dinner every night or to the most expensive restaurants. There are good restaurants that are cheaper. We don't have to travel to Europe or Asia to have a good time. One can have just as good a time traveling to a local park, and it's a lot cheaper. Spend money wisely on things you really need, like a good bed or a reliable car. There is much we can do to improve the quality of our lives without spending much, but I'll leave that for each individual to decide on his or her own how this is achieved.

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