What happened after bank lending slowed in the United States in the mid-2000s?
1 Answer
The financial crisis
Explanation:
The principle of boom and bust illustrates what occurred during the mid-2000s, money was artificially created by the Federal Reserve and it led to a disaster. Indeed, Banks started to lend mush more money than what they possibly could. They lended to clients that could not be solvent. The African American community was targetted for instance. Those clients were called NINJA (No income, no job and no asset).
The mortgage crisis happened due to variable rate mortgages, as the stock market crashed, people had to pay back and people were unable to do so. Massive evictions occurred and homelessness literally soared. Money had been lended to those people due to soaring prices in the estate market, whenever a client was unable to pay, his house was seized and sold and its price having doubled the bank had made a profit instead of losing. Yet, after 2007 the housing market stopped thriving.
The prices of houses stared to decline which meant massive losses after clients had been evicted for banks and the oil shock in 2008 triggered inflation which made it even more difficult for clients to pay their due. A vicious circle was thus created and it led directly to the financial crisis.
Various interpretations of that crisis, some blame the government for overregulating and prompting the banks to lend as much money as possible. They are called Libertarians, and they blamed the massive bailout undertaken under the Bush Administration and the others are Keynesians. They claimed that the crisis occurred due to the lack of government intervention and regulation.
