Posted by Farmallsc on April 11, 2008 at 14:07:54 from (63.138.247.2):
In Reply to: OT - Economics posted by Spook on April 11, 2008 at 13:12:21:
The issue is that banks lowered lending standards so much that loans where given to people who simply had no hope of paying them back. Additionally appreciated housing prices caused increased "wealth". people who boy a house for 40,000 dollars twenty years ago now had the same house reflected on their assets at 250,000. Except that you cant spend your living room. So loans where given on the assumption that you had 250,000 dollars of collateral. when the housing market fell through people with adjustable rate mortgages defaulted on their loans since they owed more on their house then it was worth. If the bank was to repossess the property they still couldn't recoup the loss since market value on the house was now so low. Anyway the quick answer is readjust lending standards and give the federal reserve more influence over loan criteria. It will take sometime to reverse the damage done.
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