The Real Estate Market Crash

866 WordsDec 14, 20154 Pages
From the real estate market crash in recent years I think there are three main points to be looked at and learn from: Panic, “Too big to fail”, and banks’ lending habits. The housing market crashed and caused a lot of damage in the economic state of the U.S.; there was wide spread panic and confusion on which direction the market would soon turn. Thankfully we have recovered and the boomerang buyers who found deals in the low pricing and took action were handsomely compensated for the risks they had taken. Without those individuals who began to hold true to faith that things would turn around we may not have been so quick to hit to bottom of the recession and begin to rebound. One of the largest problems I feel caused this catastrophic status was the lending branch of the banks. There is a calculable number for each borrower or set of borrowers that takes into consideration the income and debt and formulates what sort of mortgage the borrower could afford. When simply looking at this formula its perceived to be a justifiable idea: only lend what can be surely paid. However, that is where flaw number one comes in. For a bank to make money they need to lend money; they then make interest off of their outstanding loans. It is in the banks best interest to loan as much at the can. And the word can was quite stretched. FDIC member lending intuitions are required to keep X% cash on reserve that is from account holders and they use it against their loans. During this crisis the
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