None of this had to happen. The Great Recession was a man-made storm.
A special, bi-partisangovernment panel found the meltdown was avoidable.
“The crisis was the result of human action and inaction, not of Mother Nature or computer models gone haywire,” the Financial Crisis Inquiry Commission said.
The commission found that the captains of finance and the regulators who were supposed to be watching the store ignored warnings and failed to ask questions and understand the risky investments they were selling or overseeing.
Document:U.S. Bureau of Labor Statistics: A Profile of the Working Poor, 2015
Document:Financial Crisis Inquiry Report
Much of the crisis grew out of a demand problem. Traditional 30-year mortgages were out of favor, and investors around the world were snapping up securities based on much riskier American mortgages: interest-only, low-doc, subprime and no-doc loans.
Why? Because they paid more – until they didn’t.
Yana Miles, senior legislative counsel with the Center for Responsible Lending, said large financial institutions seeking big profits got into a predatory race to the bottom.
“This actually happened,” she said. “We saw the consequences of a lack of a watchdog, a lack of a regulatory environment that would protect consumers and keep the taxpayers safe – and the economy.”
The Federal Reserve failed to stem the flow of toxic mortgages, even though it had the power to do so, the commission found.
The Great Depression experience helped leaders navigate the Great Recession, but apparently did nothing to help them see it coming. Up to the time everything fell apart, the economy was zooming and few experts saw anything wrong.
More:Economy bounces back, but many still recovering from devastating downturn
When home prices started falling, the experts said the prices would likely level off and rebound. When the subprime crisis hit, the experts, including then Fed Chairman Ben Bernanke, said the contagion would likely not spread.
By the spring of 2004, the homeownership rate hit a record 69.2 percent. Many saw that as a good thing at the time, but later critics said it reflected too many people in homes they couldn’t afford.
Database:Foreclosures in Cape Coral, Fort Myers
Database:Foreclosures in Naples, Immokalee, Marco Island
Between 2000 and 2007, Americans took out $2 trillion in home equity from their homes by refinancing. That gave people more money to spend at a time when wages were stagnant. They used the money to send kids to college, take vacations, remodel their kitchens and buy new cars. It also went for more basic things such as clothing, tax payments and living expenses.
“On the surface, it looked like prosperity. … But underneath, something was going wrong,” the FCIC report said.
People took out adjustable rate mortgages (ARMs) with low monthly costs at first but with payments that could double or triple if they weren’t able to pay off or refinance them when the higher rates kicked in, usually about two years later. When house values fell in 2006, they often could not refinance because their homes were worth tens of thousands of dollars less. Nor could people sell their homes, because everything went on sale at once at a time when potential buyers were digging in.
By 2016, the homeownership rate had fallen to 62.9 percent.
Interactive graphic:Unemployment rates for Lee, Collier (2003-2017)
The recession hit unevenly, with some areas being hit earlier and harder. For months, Lee County led the nation in foreclosures. Soon other areas of Florida and other high-growth states were also struggling with record numbers of foreclosures. When the storm hit, it hit hard, it hit suddenly and it lasted a long time.
House prices nationwide didn’t peak until February 2007, but then fell 26 percent to reach the trough in January 2012, according to the CoreLogic Case-Shiller home price index. But housing is coming back: the national median sales price of house grew to $248,100 in December, compared with $234,600 a year earlier. A nice upward trend, but nothing too exuberant.
And so far, thesubprime securities monster that helped bring on the crisis is at bay.
Mobile and app users:View a timeline of the Great Recession
