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• Opening too many subprime mortgages to home buyers with low incomes.
This was due to the urging of the U.S. government to increase home own-
ership among low-income citizens.
• Basing subprime mortgages on variable interest rates. Thus, when interest
rates went up, thousands of subprime mortgages became unaffordable.
• Reducing oversight of financial institutions due to the mistaken belief that
financial markets would be self-regulating. This lack of oversight resulted
in a host of new and complicated financial transactions with increasing
risks.
2000
• Dividing and repackaging mortgages into complex financial bundles and
selling the pieces. These bundles were classified as low risk, which was a
serious mistake due to lack of oversight and inadequate audits. Repack-
aging and reselling mortgage segments in bundles makes renegotiation of
mortgages very complicated because there is no longer a one-to-one rela-
tionship between homeowners and banks or mortgage companies.
• Overbuilding homes and condominiums due to escalating real estate costs.
Many homes were built for “flipping” rather than occupancy, so the Un-
ited States soon reached a surplus of about 500,000 more homes than
there were people to live in them. This surplus was not troublesome when
prices were going up, but when the bubble burst, the surplus caused prices
to drop more quickly than might otherwise have happened.
2008
• Allowing Lehman Brothers to fail in September 2008, which triggered an
abrupt and startling global financial crisis.
• Providing Troubled Asset Relief Program (TARP) funds to banks and fin-
ancial institutions without oversight. Although the TARP was intended to
restore financial flexibility for consumers and homeowners, the lack of
oversight resulted in decreases in lending by TARP recipients but no de-
creases in bonuses and compensation for officers.
2009
• Providing stimulus money to states without adequate oversight. As a res-
ult, a significant amount of stimulus money was used to pay the pensions
of retired workers and the salaries of current workers rather than being
used to create new jobs and remove unemployed citizens from welfare.
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