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The Financial Bailout Explained

Updated on November 26, 2014

The Financial Crisis: What's Happened in 2008?

In 2008 and early 2009, Americans experienced an economic crisis the likes of which had not been seen since the Great Depression. Multi billion dollar banks collapsed, the Stock Market dropped by nearly 50%, unemployment skyrocketed to over 10%, and the government literally provided billions in bailout money to many financial firms and auto companies, including some of the most established companies in the United States like General Motors.

This hub will attempt to explain why this crisis happened as simply as possible. It will do so by answering the following three questions.

  1. The timeline of the crisis. How it started, the steps along the way. Basically how we got to where we currently find ourselves.
  2. The pros/cons of the bailout plan. What we as a nation can do to get out of this.
  3. How Americans were affected by the crisis and what you can do to weather the downturn.

The epicenter of the crisis

1. How we got here.

The Housing Bubble. Yes, there are a lot of other issues, but the root cause of the crisis is that Americans thought that housing prices would keep going up. For individual Americans it meant they thought they could keep refinancing their homes, making adjustable interest rates irrelevant. For investment banks it meant that they could sell complex derivitives based on overly inflated housing values. For individual Americans with adjustable mortgages it meant they could continually refinance their loan terms as long as housing prices kept going up, keeping their rates low. It also meant that debt was generally cheap: you had low interest rates on credit cards, mortgages, student loans, etc compared to historical averages.

Bankers got into the same state of mind as American homeowners: they assumed that housing prices couldn't fall as much as they did. Reveling in the boom, they borrowed billions of dollars to increase their stakes in mortgage based holdings. This is what brought Lehman Brothers down last October: according to some estimates they had 1 dollar in cash for every 32 dollars in assets they owned.

This is fine as long as things keep going well and prices keep going up: banks kept lending to each other (and homeowners) under the assumption that things would eventually be paid off. Why worry about risk when there was money to be made? Why worry about how much you owe on your mortgage when prices keep going can always sell if the payments get too high and make a killing over what you paid for it.

This assumptions began to fail in late 2006, when housing markets across the country begin to tank. People were suddenly stuck with mortgages they couldn't pay off or refinance as home values shrunk. Banks were stuck with mortgage backed investments that were suddenly worth a lot less (though how much less exactly is still up for debate) than they thought. This meant that banks started hoarding cash in case they would have to pay off their bad investments, making it more expensive for banks to lend to each other--and to consumers. This in turned fueled more foreclosures and defaults in a deepending cycle as people and institutions found it much, much harder and more expensive to borrow money.

It is this spiraling crisis that led to the collapse of Bear Stearns in March 2008, Lehman Brothers and AIG last fall, and General Motors and Chrysler in the spring of 09. Yes, all these companies made a number of terrible decisions and borrowed way too much, but if credit markets were in a normal state they could probably have borrowed money from other banks to pay off their short term debts and stay solvent. But the credit markets were far from normal: NO ONE wanted to lend any money until things calmed down. This is why the federal government had to step in and why we saw such panic on Wall Street: a limited amount of lending is always needed to allow markets to work. And that lending just wasn't happening.

No matter what happens, the taxpayers are going to be shelling out a big chunk of these.

2. Pros/Cons of Another Bailout

Fact 1: The first bailout temporarily returned the flow of credit markets, stopped banks from failing, and seems to have stabilized the markets, which have rallied nicely so far this year.  Unfortunately, unemployment continues to skyrocket as businesses have seen profits plummet and are cutting head count, reducing production, and curtailing or eliminating new hires to ride things out until things get better.

Fact 2: The market alone will not be enough to bring the country out of a recession.  Despite some of the craziness of recent years, most financial products are still based on corporate profits of some sort, and if corporations are not making money (which many are not currently), they are not going to hire new people.  Indeed, if they continue to lose money and demand continues at these anemic levels, there will be even more layoffs.

Fact 3: Stimulus or not, the government is going to be in debt in the short term.  Most economists, even conservative leaning ones, agree that short-term spending is sometimes necessary to get an economy rolling during a deep recession.  The key is to make sure that spending is targeted at institutions that will generate economic growth (like small businesses, new technology and development firms, etc) as opposed to those who will hoard cash until things look better (as some banks are doing).

Key things any new bailout should include.

  • Greater oversight over banking practices. Anyone who hates government intervention should explain why, if the free market is so perfect, we ended up in the current situation we find ourselves in.  Unfortunately, the banks seem to be winning this battle for now, claiming that thinks have returned to normal and that further regulation will slow down the economic recovery.
  • A consumer protection agency to regulate things like mortgages, credit card disclosures, and predatory loans.  Yes, you should always read contracts, and lots of people knew what they were signing up for, but too many financial institutions load their products up with far too many confusing fees that are not disclosed as easily or clearly as they should be. 
  • Grants to small entrepreneurs and small firms that are developing new technologies.  If we're going to bailout a dinosaur like GM, we should be investing in companies that have the chance to become the new GM and lead innovation and drive economic growth in the future.
  • As a more general point, anyone who thinks that pure free market capitalism works is just as crazy as anyone who thinks pure communism works. Either extreme is impossible in a world of irrational humans. The government will always have to engage in some regulation, just as their always has to be some private ownership and incentives for people to work. But claiming that "leaving everything to the market" will make things work out in the end is idiotic

help you
help you

3. How you can help yourself

Here's what you can deal to best protect your bankroll in these uncertain times.

1. Worry about the things you can control. Nothing you can do will change the direction of the market. Or, unless you're Henry Paulson or Warren Buffett, the status of the bailout package. You can, however, start making more money right now by cutting your expenses. Bring a lunch to work instead of eating out. Walk or take public transit instead of driving. Cut out the daily Starbucks trip: even assuming you just buy a small coffee, that will save you over 400 dollars in just one year. Remember: saving more money is essentially the same as making more money.

2. Invest money in a online savings account like ING Direct or HSBO. You can earn up to 2% interest in some of these, which is way better than a standard checking account pays. 2% doesn't sound like a lot, but that means that for every 1000 dollars you invest, you'll get 20 free at the end of the year. And that increases over time.

3. Start generating a second income! Blog, write for hubpages, start doing odd jobs around the neighborhood, you can even get paid to fill out surveys online. None of them will make you a ton of cash, but anything that makes you some extra dough should be taken seriously these days. Remember: every little bit counts, especially if you are young. A dollar you earn and save in your early 20s is worth 10X as much as every dollar you earn and save in your 40s.

4. Don't panic. All of your bank accounts and CD's are insured up to $100,000. Even if a bank fails, you will still get all of your money back: it might only take a few days.

5. Ride out the storm. Especially if you are under the age of 40 and have some time until retirement. Don't sell all of your stocks: the markets are low right now, and you might miss out when stocks turn up again. If you're older you might want to consider shifting more money into safer bonds because the markets might not recover by the time you need the money. But for everyone else, wait it out.

6. Stay informed. Read personal finance blogs. Follow the news. By knowing exactly what is going on, you'll have a leg up on everyone who acts on rumors or panics because of a lack of information.

7. Be prepared for the worst. Have your resume ready to go and have a game plan for what you will do if you are laid off. Its never a bad thing to have an emergency plan, even if the worst never happens you'll give yourself some peace of mind. If it does, you'll be a step ahead of the game and ready to go when things pick up.

I hope this helps, feel free to message me if you have any questions or have any comments/suggestions on the hub. Good luck!


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    • monicamelendez profile image


      7 years ago from Salt Lake City

      Great explanation! The bailout is honestly a catastrophe

    • thecounterpunch profile image


      9 years ago

      It's always funny to hear explanations AFTER the facts whereas you could have seen coming if you understand the real fundamental behind this system since hundreds of years.

      So expect THE REAL BIG CRASH coming towards 2012: it may not be the end of the world but the end of your job again:

    • profile image

      Forex Learner 

      9 years ago

      Lately I've been thinking about this matter a lot. One thought that occurred to me is this: how likely is it that so many banks could be making exactly the same mistakes at exactly the same time, so they are all imploding simultaneously? It leads me to my original premise that it was a lack of oversight from federal regulators that is the root of this problem.

    • profile image


      10 years ago

      Here's what we need. Regulation. Regulation. Regulation.

    • profile image

      Bank Foreclosures 

      10 years ago

      It's nice to finally read a well written and entertaining webpage on the current financial crisis... one that explains the causes and effects in detail, but which nearly anyone with half a brain can understand.

      While I didn't agree with every point you made, I appreciate the lucidity of your arguments. Thanks.

    • profile image

      fix my debt 

      10 years ago

      what a great read! entertaining and informative and right on point!

    • Amber90 profile image


      10 years ago

      I am an educated women with real world experience who felt that I had a pretty good handle on the situation and how deep it goes - how wrong I was. I can say that I almost feel stupid from how blanatly greedy lead figures have become and how long this situation has been predicted. I have learned from your hub and even more from these replies.

      @ socalweddingdj (above) THANK YOU!

    • socalweddingdj profile image


      10 years ago from San Diego

      It just goes to show, that there are asshats on either end of the political party, and be it a would-be socialist or POW of 6 years in bed with the same people as George W. Bush (who could be handed the worlds biggest trigger, the US military) we are in for some very unprecedented times.

      So it's either you choose diplomacy, but a socialized government model (and a possible assassination because of the racism still flourishing in middle america), or you choose a corrupt POW with a temper, rediculously unqualified running mate and a seemingly unquenched thirst for our time of War.

      Who's to say the boys in blue or red can fix what we have collectively done with our economy? I am sure whoever gets the seat will continue to pass the buck. That's how we roll!

    • profile image


      11 years ago from United States

      Interesting article!

    • profile image


      11 years ago

      i got some skeletons in my closet and i dont know if now one knows it so before they throw me inside my cofin and close it im gonna expose it !

    • profile image

      Dr Dre 

      11 years ago

      nothing you idiot, hes locked in my basement.

    • profile image

      Kurt Cobain 

      11 years ago

      I found this hub to, needless to say, interesting. I found it informative as well as entertaining. The points you both bring up in the comments helped more me than anything. Thanks for the great work. GO OBAMA!!!!!

    • profile image

      Kurt Cobain 

      11 years ago

      I found this hub to, needless to say, interesting. I found it informative as well as entertaining. The points you both bring up in the comments helped more me than anything. Thanks for the great work. GO OBAMA!!!!!

    • sharonsarah profile image


      11 years ago

      Nice hub. I absolutely agree with chef Jeff. You have posted nice information.

    • nancydodds1 profile image


      11 years ago from Houston, Texas

      Hi I got more information from your hub really iam very thankful to you. Here you can get some more information regarding mortgage which can be helpful to you

    • Amanda Severn profile image

      Amanda Severn 

      11 years ago from UK

      Ajherma this was a very easy to understand version of events, and it has been further enhanced, in my view, by the exchange of comments between yourself and Timothy, which have certainly filled in a few gaps in my understanding.

      BTW, I liked you final list of suggestions on how to help yourself. There are a few more on my Transition Towns hub.

      Thumbs up!

    • profile image

      Robert Frost 

      11 years ago

      It was a very good hub, but i found the little debate between you and Mr. Schewe to be the most informative part. Whether or not you realize it those comments filled in alot of the little details that you left out that would have been very helpful in the initial hub. Although saying that i understand your effort for simplicity. I for one do not like to spend my time reading things that i don't understand and i appreciate you simple hub.

    • terenceyap07 profile image


      11 years ago from Singapore

      This is a very well written hub, Ajherma. I'm especially impressed with the fact that it has been presented in such a simple and clear manner. As I am by no means a person that understands the way in which financial institutions operate in the US, this article has been very beneficial to me.

      Keep up the good work, my friend. I hope to read more from you in future.


    • Kosmo profile image

      Kelley Marks 

      11 years ago from California

      Thanks for a very informative hub regarding a potentially traumatic issue. Isn't it amazing what greed and stupidity can do? Moreover, when it suits ol' Georgie Boy, he turns socialist real fast, doesn't he?

    • Timothy C. Schewe profile image

      Timothy C. Schewe 

      11 years ago from


      While I share your frustration I'm not sure agree completely with your premise. My understanding of human nature leads me to believe that most people probably had every intention of paying the bill. Most probably saw this as a way to get their piece of the pie. Unfortunately success depended on ever increasing prices and continued low interest rates and the bulk of these people weren't sophisticated enough to be able to adequately assess the risks. And then of course there is good old greed and the desire for something for nothing.

      I think that the borrowers deserve to take it in the shorts, suffer their losses and carry on without any help from the rest of us via our esteemed government. that is of course unless I'll get my mortgage lowered a couple of points as well ;-)

    • profile image

      Steven Ahmad 

      11 years ago from NYC

      This is a very informative hub. Thumbs up!

    • profile image

      Steven Ahmad 

      11 years ago from NYC

      This is a very informative hub. Thumbs up!

    • GabrielleGuichard profile image


      11 years ago from Antofagasta (Chile)

      Dear Aj and Timothy, It's true that the Carter's administration forced the lenders to lend to people who could not pay back. But who forced these people to borrow? They borrowed without intention of paying back. They knew they could not. Not only the sharks deserve the blame.

    • ajherrma profile imageAUTHOR


      11 years ago from United States


      Thanks for your response, I appreciate and enjoyed reading the examples you gave and agree with most of your thoughts.   I too must apologize for the "scam artist" comment.  Like your reaction to poorly researched political hubs, I have a knee-jerk dislike for anyone who claims to have investment strategies that will beat the market, and they can be yours for the low, low price of ____ (you get the idea).  $49 is far more reasonable, though I would encourage you to put more specific examples of the advice you are offering in your book, since a lot of general financial advice can be found for free at other places on the web.

      A couple of specific points I want to respond too.

      The taxable interest comment is definitely something that people need to keep in mind.  My point there wasn't that high interest savings accounts can be substituted for investing in the stock market (they can't), as equity should produce much greater yields over time.  Instead I was suggesting that there are lots of small ways that people can increase their income so they WON'T have to pull money out of the stock market.  One of those is opening an online high interest account with a company like ING or FSBO that will likely offer a much, much higher rate than your standard savings or checking account.

      As for the Iraq War, you are right about me misquoting "imminent danger."  Instead, President Bush described the situation as one where the world and the United States was in "grave danger." 

      See the transcript of the speech posted on the White House website:

      So I believe the general point about not trusting the administration still stands.  Whether it be because of faulty intelligence, gross incompetence, or general deception, I cannot say.  But it is undeniable that the Bush administration has a history of miscalculating the scope and nature of threats to this country. I think most Americans should be very wary of any plan that requires taxpayres to hand over billions of dollars to a few individuals because of "grave danger."  I do believe that the economy is in trouble, I just find it troubling that the administration is using that danger to demand broad powers and huge funding with very little oversight.

      Thanks again for your thoughtful response, I definitely appreciate it and enjoy the dialogue and comments.  I encourage others to jump in as well if they want to weigh in on any of the things I bring up here hub, and thanks to everyone who has read or commented on this hub.

    • Timothy C. Schewe profile image

      Timothy C. Schewe 

      11 years ago from

      Dear ajherrma,

      I apologise for being too harsh in my comments. In retrospect I certainly could have phrased things differently and recognise that I would have done well to count to ten. In fact, were I a wiser man I would simply have shaken my head and kept moving. Unfortunately that's water under the bridge.

      I agree that being annoyed with the contents of your hub I should have felt a certain obligation to provide examples of how I believe your perspective is factually incorrect and/or off base. I am already wallowing in it here goes, this will be cursory but I really don't have the inclination to create a full fledged hub in response.

      You promised a timeline but failed to deliver more than generalities. A particularly egregious omission(in my opinion) is any mention of the role of Congress (The Government) in this mess. This is one example of less than adequate research and maybe political bone picking as well. The nexus of the current problems can be traced to the Community Reinvestmentment Act initiated by Congress during the Carter administration 1977. This mandated that lenders lend to high risk borrowers by lowering long-held industry standards. If they failed to comply they were subject to stiff penalties and frequently prudent bank mergers were held up if one or both entities did not sufficiently "lend" to borrowers that under normal circumstances would fail to qualify. After much lobbying by activist groups and community organizers in the early nineties the Clinton administration broadly expanded the CRA.The result was that sub-prime lending surged from $35 billion in 1994 to nearly $1 trillion by the end of last year - for total growth of 2757%. No market, grows that fast for that long without hitting the wall.

      The Clinton era revisions allowed for the first time the securitization of CRA regulated loans containing sub-prime mortgages. These changes were pressed in great measure by "housing rights" groups such as ACORN who at the time was represented by a young "public interest" lawyer from Chicago named Barack Obama. This public interest activism in turn led to HUD pressuring Fannie Mae and Freddie Mack to purchase more sub-prime mortgages from the likes of Countrywide Financial and others. The Village Voice (a noted liberal paper) reported that Andrew Cuomo, Clinton's HUD secretary "made a series of decisions between 1997 and 2001 that gave birth to the current crises." One such rule change gave Freddie and Fanny extraordinary leverage, allowing them to hold just 2.5% of capital to back their investments vs. 10% for banks. Since they could borrow at lower rates than banks due to the implicit government gaurantees for their debt these two enterprises boomed. Commercial banks with "incentives" hanging over their heads also poured billions into "no doc" and "no income" loans that required no money down and no verification of income. By 2007 Fannie and Freddy owned or gauranteed nearly half of the $12 trillion dollar U.S. mortgage market.

      And then there was the cronyism. Freddie and Fanny became a kind of jobs program for out of work politicos, mostly Democrats. Not surprisingly both organizations soon became huge contributors to Congress showering both sides of the isle with largess.

      Of course this worked. In 2004 (one of dozens of examples) Rep. Cliff Stearns, R-Florida tried to hold hearings on Freddie and Fanny's questionable accounting practices and was promptly stripped of responsibility for their oversight by then House Speaker Rep. Dennis Hastert.

      So where were the regulators?

      Congress had created a purposely weak regulator to over-see Freddie and Fannie - the Office of Federal Housing Enterprise Oversight - which unlike other regulatory agencies had to go hat in hand to Congress each year for its budget.

      With lax oversight Freddie and Fannie had the green light to rapidly expand their operations and their officers to siphon off ever increasing salaries and bonuses all while showering their protectors with hundreds of millions of dollars in campaign donations and millions more on think tanks and community groups.

      Head of the Senate Banking panel, Chris Dodd (of below market mortgage fame) heads the list in total campaign contributions, followed by Barak Obama who hasn't been there more than a few years but sure knows how to play catch-up (or is that pick-up?)Sizable donations also flowed into the campaigns of Barney Frank and Nancy Pelosi who throttled investigations at both of the agencies. Jim Johnson and Franklin Raines the CEO's under whom the worst excesses took place from the late 1990's to mid 2000's both left with millions in salaries and bonuses, in Rains case in excess of $100 million and both currently serve as advisers to presidential candidate Barak Obama.

      aj, I recognise that you did state your intent to explain things as simply as possible, maybe it was a bit too simple. Probably my contribution above is way too complex.

      As for factual inaccuracies.

      Bullet point #2 under "the Key Things The Bailout Plan Should Include"

      You reference the Bush Administrations calls for the Iraq war. It is evident you have no great admiration for the Bush administration, something we share in common. For the sake of accuracy however it may interest you to know that the Bushies were extremely disciplined in their rhetoric and always used the term "gathering threat" not immanent danger (I think you meant immanent threat) "Immanent threat" was a phrase first used by John Edwards in his speech on the Senate floor supporting the original war funding. It sounded so good that the Dems decided to stuff it into Bush's mouth and attribute it to him.They're good at that sort of thing. As for"we're still trying to figure that one out". I won't go off on another tangent (I promise) but would refer you to the Duelfer report to Congress re: WMD's and suggest that absence of evidence is not necessarily evidence of absence, no matter how politically snarky we might want to be.

      One example of off-baseness: Money into a savings account at 4%/yr? Come on aj, that doesn't give you $40.00 at the end of the year because the IRS wants its cut. and what you have left doesn't balance inflation, so the only thing that increases over time is the distance that you are falling behind.

      I do feel it necessary to respond to your gratuitous attempt to portray me as a "web scam artist".

      You obviously visited my website, clicked on the image of my book and did some reading. In which case you know well that $169.00 is one of several price points at which the book can be purchased.So to answer the question "why would one shell out that kind of cash...."? the answer is "They wouldn't" and that aj is the whole point. No one would, no one should, and no one does...ever. Over 96% of sales happen at the $49.00 price point, which even someone who invests at 4% simple interest before taxes and inflation can afford. But it's o.k. I understand why you focused on $169.00, I might have done the same.

      I'm happy to agree to disagree as to whether index funds and bonds in a tax deferred retirement account will put one in "excellent shape" as that has a lot to do with just how frugal a life one aspires to.

      Again aj, I apologise and am suitably chagrined. It was late, I'd just read a couple of asinine political hubs and a few minor points in yours set me off. I was out of line. Frankly for what you set out to do you did o.k. with the exception of missing the role of the political class.




    • Veronica profile image


      11 years ago from NY

      There is so much to be said for the advice you gave here, like generate a second income and try to worry about the things you can actually control. Great all -around advice. You have a fan.

    • denisewrtr37 profile image


      11 years ago from Philadelphia

      Interesting post. I agree with what the first commentor said. This reminds me of the fall of the S&amp;Ls. Folks thought the S&amp;Ls would be strong and around for a long time, but then they started to fall, one after the other. Today it's like they never existed. Overall, I think the economy is diversified enough to weather this storm.

      Denise Webbing it Up!

    • JYOTI KOTHARI profile image

      Jyoti Kothari 

      11 years ago from Jaipur

      Dear ,

      A very...... good hub. I have also written 4 on the financial problem of america. I suggest you to put more tags to search engines crawl it better, means better traffic.

      Jyoti Kothari

    • ajherrma profile imageAUTHOR


      11 years ago from United States

      A quick response to the above comment by user Timothy Schewe:

      I want to respond to the comment &quot;It's evident that you have a political bone to pick here. This is unfortunate in that it seems to have kept you from doing your homework. This is one of the most poorly researched hubs I've read. You seem to have no grasp of the facts what so ever. You sure do have an opinion though.&quot;

      I believe in free speech so I approved this comment, but I'm curious to know what specific sections of my hub you believe are &quot;poorly researched.&quot; Or what makes you think I didn't do my homework. Because, as far as I can tell, your comment offers no examples nor any specific reasons why my hub is factually incorrect or off base.

      I am very curious how someone who offers to sell a book entitled &quot;Life, Death &amp; Rebirth: A Simple Guide to Outrageous Stock Market Profits&quot; for $169 can describe my analysis as poorly researched. Yes, you don't need a Harvard MBA to make money in the stock market. You just need to invest broadly in index funds and bonds, preferably through an Roth-IRA or 401K tax sheltered retirement vehicle. Combine that with frugal living and the beauty of compound interest and you'll be in excellent shape. Oh, that, and staying away from web scam artists who sell you financial advice books for $169 a pop.

      After all, why would you shell out that kind of cash when you can find step by step, easy to follow advice on how to strategically invest at a number of free financial blogs. I point you to The Simple Dollar, My Money Blog, and Cash Money Life as excellent examples of this type of resource.



    • profile image

      James waterman 

      11 years ago

      i still don't know what any of this means. please put this in my language.

    • Timothy C. Schewe profile image

      Timothy C. Schewe 

      11 years ago from

      It's evident that you have a political bone to pick here. This is unfortunate in that it seems to have kept you from doing your homework. This is one of the most poorly researched hubs I've read. You seem to have no grasp of the facts what so ever. You sure do have an opinion though. There is an old adage that applies well to this tripe, &quot;facts are the enemy of the truth&quot;. Think about it.

    • profile image


      11 years ago

      Well explained, Thanks for this informative timely info.

    • The Loan Arranger profile image

      The Loan Arranger 

      11 years ago

      Great hub. Some interesting comments. This topic is going to be around for a while and not many people really understand what is going on like a) what the bailout really means and b) what will really happen if the bailout fails. Are the members of the Senate that voted against the bailout just protecting their own interest so that when election time comes they can stand up to their voters and say 'you can trust me - I voted against the bailout' but knowing full well it may have been the wrong thing to do?

    • AndyBaker profile image


      11 years ago from UK

      This is a fantastic hub and VERY useful. Thanks.

    • sharonsarah profile image


      11 years ago

      Nice hub. Very good information was shared.

    • profile image


      11 years ago

      So sad, but so true...Great Hub!

      This should be read by everyone to better understand the current crisis.


    • Web Market Guide profile image

      Web Market Guide 

      11 years ago from Moose Jaw, Canada

      Excellent presentation and overview of the facts. Verax has some interesting additional comments to make.

      To bad the decision makers don't read Hubs.

    • Dottie1 profile image


      11 years ago from MA, USA

      Excellent and very informative hub. Something we should all know and very simple to understand. Thanks for writing. Thumbs up and my vote in the Hubnugget contest!

    • NYLady profile image


      11 years ago from White Plains, NY

      Great, informative hub. I'm voting for this one in the Hubnuggets contest because I actually learned something. Thanks!

    • Verax profile image


      11 years ago from Oregon

      Nice vague blame the folks. 1.You did not mention that the Clintons pressured the banks to write mortgages outside of traditional mortgages (less than 20% down and a high credit score) 2.You did not mention that Fannie Mae and Ferdie Mac took the questionable mortgages and blended them with good mortgages. 3.Mortagage bankers and speculators looked at the new rules and went to business buying homes on speculation with little and now money down. Most of these mortgages were not by definition bad, there were just a lot of them.

      As long as some of the banks saw that they could essentially get free money they would keep processing the loans because FM1 and FM2 would by them. So FM1 and FM2 bulked up.

      In the past the commercial banks would buy large groups of solid morgages and turn them into large investment vehicles that could be traded. FM1 FM2 have become the new vendors of large mortgage bundles with one small difference you do not know how many of the mortgages are bad in any group.

      Housing prices drop and the questionable mortgages begin to default everyone except the golden parachute FM1 and FM2 people are left holding the bag.

      Very few people said anything about the impending debacle. The Congress both parties looked the other way for 7 years.

      Best Solution: Prosecute the leaders of Fannie Mae and Ferdie Mac with the same zeal as Enron.

      No blank checks, Offer insurance to banks and companies caught in the lurch.

      Lose Fannie Mae and Ferdie Mac. No more creative loans. Hope for the best

    • BizzyMuse profile image


      11 years ago from Southern California

      Interesting information and well-stated. You are absolutely correct when you suggest that people take responsibility and stay informed, as opposed to reacting with panic.

    • Paraglider profile image

      Dave McClure 

      11 years ago from Kyle, Scotland

      Good dispassionate information - thanks. I take (but don't like) your point that the bail out if it is to work will inevitably create winners among the criminals (my word) and I think that is to be abhorred.

    • 02SmithA profile image


      11 years ago from Ohio

      Nice hub. It concerns me when I hear all these young people pulling all their money out of stocks right now. The market willl likely go much lower, but in the long run these should still be good investments! Wall Street has to be revamped and this corrupt method of overleverage and not enough regulation needs to end.

    • profile image


      11 years ago from Nevada

      On your #1 did you know that Bush warned congress about this and they sat back and did nothing? I like your #3 How you can help yourself, that was very thoughtful writing, most writings that you see out there just focus' on the crisis and not the individual, thumbs up on that one, makes one see a clear path in a way.

    • VegaLove profile image


      11 years ago from Austin, TX

      GREAT HUB!!!! very informative &amp; answered a lot of questions I had. THANKS!!!!

    • crashcromwell profile image


      11 years ago from Florida

      Great hub! I've been writing on this issue purely from the perspective of the bill the Bush Administration advanced to cure this problem. However, you did a great job of explaining the situation in the real estate market that led to this catastrophe.

      Lately I've been thinking about this matter a lot. One thought that occurred to me is this: how likely is it that so many banks could be making exactly the same mistakes at exactly the same time, so they are all imploding simultaneously? It leads me to my original premise that it was a lack of oversight from federal regulators that is the root of this problem. It's the only logical common denominator in the equation.

      Jim Henry, aka crashcromwell

    • profile image


      11 years ago

      I tend to agree with Chef Jeff with one minor difference. Those whor and the banks into the ground will still be dancing in the streets when the government saves their jobs so they can rob a few million more cictizens.

    • Chef Jeff profile image

      Chef Jeff 

      11 years ago from Universe, Milky Way, Outer Arm, Sol, Earth, Western Hemisphere, North America, Illinois, Chicago.

      The more I discover about this crisis the more it reminds me of the Savings &amp; Loan crisis. Housing prices falling, stock market fluttering like a heart in fibrilation, people panicking, government stymied, panic looming right around the corner, helplessness of the common person.

      And guess who is still mouthing off about it? Why, John McCain, participant in the Keating 5, which precipitated the S&amp;L crisis!

      When will we ever learn? We are just as guilty, I fear, as the Big Boys on Wall Street. The difference is that we think we are being crafty when we earn a few hundred or thousand dollars. They are being crafty when they earn millions or even bilions! Our greed is like a mosquito bite compared to a shark bite, but the accumulated greed eventually makes for a mountain of greed and we are at the bottom, where the avalanche hits hardest.

    • profile image


      11 years ago

      thanks, that was a good explanation


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