Excerpts
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The real estate sector boomed. This bubble reflected unexplainable rapid, huge increases in the price of property all over the United States. All this occurred in the face of a huge, unfavorable U.S. balance of payments situation. The United States has recorded a balance of payments deficit since 1976. When the housing bubble ended in 2007 in the midst of unprecedented foreclosures, builders could not sell the newly constructed houses at the high prices that they had hoped to get. This was even more farfetched, because interest rates started to increase. There were too many foreclosed homes on the market at very low, bargain prices. The increased high rate of unemployment in many cities exerted more pressure on the housing market as this precipitated more foreclosures. Consequently, the U.S. economy went from a boom to a financial crisis and a deep economic recession.
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It is true that bad lending practices by banks and financial institutions, whereby borrowers took out mortgages that they could not afford, were some of the immediate causes of the financial crisis and economic recession. The unprecedented foreclosures caused illiquid mortgage-related assets which choked off the flow of credit that is so vitally important to any economy. Broadly speaking, some factors that directly or indirectly contributed to the maladies of the financial crisis and economic recession were: the inadequate regulatory framework and oversight of the financial services sector, regulatory compliance shortcomings and failure of the Federal Reserve Bank and the Securities Exchange Commission to introduce and implement appropriate policies and surveillance to achieve long-run goals of price stability and sustainable economic growth, unchecked corporate greed, easy credit conditions, excessive subprime lending, predatory lending practices, increased debt burden and over-leverage, poor pricing of risk that subsequently led to the collapse in real estate prices, unprecedented foreclosures, and unavoidable illiquidity in the financial institutions and the clogging of the financial system.
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