Some of the toxic financial "instruments" are hopelessly complex. But the basis of the financial crisis is terribly simple: greed.
by Mike Kelley
The beginning of 2009 saw the United States, the European Union and other nations in a financial quagmire, caused in large part by the huge problems in the real estate markets. The "subprime lending crisis" has resulted in literally millions of delinquent mortgages, with many of these on the verge of foreclosure. It's a housing crisis unmatched since the Great Depression, especially in the United States.
What went wrong? What brought about this crisis in housing that has led to the collapse of major financial institutions such as Lehman Brothers and Bear Stearns, and caused the collapse of many formerly sound banks?
Americans have had a long love affair with homeownership, which has been the cornerstone of the American dream. Moving up from renting to owning one's home provided a feeling of security. It also came to be seen as a solid financial move. Since house prices usually rose year after year, owning a home was one way average people could hope to gain some measure of financial independence.
The U.S. government helped the process, as homeownership became government policy. The GI Bill after World War II made it possible for millions of veterans to buy homes with little or no down payment. This policy helped returning soldiers reestablish themselves, and with a growing economy and a strong commitment on the part of the borrowers, relatively few ended up in foreclosure.
Seeking to extend these benefits to the general public, Congress passed the Federal Housing Act, creating the Federal Housing Administration. Now the average American could, with as little as 3 percent down, buy a house on very favorable mortgage terms, because Uncle Sam was ultimately backing the loan.
