Changes

==Causes==

==Causes==

In 2000 [[Howard Husock]] warned that the [[Community Reinvestment Act]] of 1977 and the expansion in 1995 would prove expensive; President Bush strongly endorsed the program. Despite widespread misunderstanding they did not cause the great crisis since CRA loans comprised only about 6% of the toxic mortgages. <ref>[http://www.city-journal.org/html/10_1_the_trillion_dollar.html The Trillion-Dollar Bank Shakedown That Bodes Ill for Cities], Howard Husock, ''City Journal'', Winter 2000; Governor Randall S. Kroszner, "The Community Reinvestment Act and the Recent Mortgage Crisis," (December 3, 2008) [http://www.federalreserve.gov/newsevents/speech/kroszner20081203a.htm online]</ref>  

As hundreds of billions of dollars poured into the U.S. from abroad, financiers looked for imaginative ways to make a profit. They turned to [[real estate]], with the philosophy "Buy high--sell higher!"  The higher price paid for a house the more profit would be made when it was resold ("flipped") in six or 12 months; prices were certain to keep going up and up. Salesmen made big money by phoning prospective buyers, promising to get them Bog Money Quick. People who owned a house whose value had doubled could and did refinance their mortgage for the higher amount, and keep the difference. In the early 2000s, U.S. interest rates were low and demand for housing was high, as housing prices soared, especially in California, Florida, Nevada and Arizona. Mortgage companies and banks were very eager to lend, especially to people with mediocre [[credit]] who would not previously have been eligible for mortgages and to speculators. Speculators were ordinary people who already had a house and who were hoping to make a large profit on the purchase and quick resale ("flip") of another house or condominium, which no one ever lived in.<ref> The only money the speculators had at risk was a down payment; sometimes the construction company paid for the down payment and closing costs, so the risk to the speculator was zero.  Mortgages in the U.S. are "non-recourse" which means that borrowers cannot be sued for stopping payments.</ref> The expectation was that continuously rising house prices would cover the mortgage payments through refinancing. Many of the mortgages involved very low down payments and low monthly payments for the first year or two, after which the payments would start soaring. Sometimes the monthly payment at first was zero.

As hundreds of billions of dollars poured into the U.S. from abroad, financiers looked for imaginative ways to make a profit. They turned to [[real estate]], with the philosophy "Buy high--sell higher!"  The higher price paid for a house the more profit would be made when it was resold ("flipped") in six or 12 months; prices were certain to keep going up and up. Salesmen made big money by phoning prospective buyers, promising to get them Bog Money Quick.  People who owned a house whose value had doubled could and did refinance their mortgage for the higher amount, and keep the difference. In the early 2000s, U.S. interest rates were low and demand for housing was high, as housing prices soared, especially in California, Florida, Nevada and Arizona. Mortgage companies and banks were very eager to lend, especially to people with mediocre [[credit]] who would not previously have been eligible for mortgages and to speculators. Speculators were ordinary people who already had a house and who were hoping to make a large profit on the purchase and quick resale ("flip") of another house or condominium, which no one ever lived in.<ref> The only money the speculators had at risk was a down payment; sometimes the construction company paid for the down payment and closing costs, so the risk to the speculator was zero. Mortgages in the U.S. are "non-recourse" which means that borrowers cannot be sued for stopping payments.</ref> The expectation was that continuously rising house prices would cover the mortgage payments through refinancing. Many of the mortgages involved very low down payments and low monthly payments for the first year or two, after which the payments would start soaring. Sometimes the monthly payment at first was zero.

Both the Bush and Clinton administrations made it a national priority to encourage more people to buy houses, assuming this social engineering would be good for everyone. In 2000 [[Howard Husock]] warned that the [[Community Reinvestment Act]] of 1977 and its expansion in 1995 would prove expensive; but President Bush strongly endorsed the program. Despite widespread misunderstanding they did not cause the great crisis since CRA loans to poor neighborhoods comprised only about 6% of the toxic mortgages. <ref>[http://www.city-journal.org/html/10_1_the_trillion_dollar.html The Trillion-Dollar Bank Shakedown That Bodes Ill for Cities], Howard Husock, ''City Journal'', Winter 2000; Governor Randall S. Kroszner, "The Community Reinvestment Act and the Recent Mortgage Crisis," (December 3, 2008) [http://www.federalreserve.gov/newsevents/speech/kroszner20081203a.htm online]</ref>  

Americans owed some $10 trillion on their mortgages, most of which were sound with payments made on time. However financiers bundled the mortgages into very complicated packages called "'''collateralized debt obligations''''<ref> That is, homeowners were obligated to pay the debts and the collateral behind them was the physical house.</ref> or CDOs. Hundreds of billions of dollars worth of CDO's were sold to banks, pension funds and financiers in the U.S. and Europe. Generally they borrowed cash to buy the CDOs.  The risk was that if the CDO's declines in value, they would not be able to repay those loans.  To minimize the risk, companies sold insurance called "credit default swaps" ('''CDS''') to guarantee payment of the CDOs. The largest seller was [[American International Group]] ('''AIG'''), the world's largest insurance company. The CDOs and CDS were especially attractive because they were not regulated by the government; experts are not sure how many trillions of dollars are involved.

Americans owed some $10 trillion on their mortgages, most of which were sound with payments made on time. However financiers bundled the mortgages into very complicated packages called "'''collateralized debt obligations''''<ref> That is, homeowners were obligated to pay the debts and the collateral behind them was the physical house.</ref> or CDOs. Hundreds of billions of dollars worth of CDO's were sold to banks, pension funds and financiers in the U.S. and Europe. Generally they borrowed cash to buy the CDOs.  The risk was that if the CDO's declines in value, they would not be able to repay those loans.  To minimize the risk, companies sold insurance called "credit default swaps" ('''CDS''') to guarantee payment of the CDOs. The largest seller was [[American International Group]] ('''AIG'''), the world's largest insurance company. The CDOs and CDS were especially attractive because they were not regulated by the government; experts are not sure how many trillions of dollars are involved.