The Subprime Crisis Of 2007 / 2008

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Introduction The subprime mortgage crisis, often referred to as the housing crisis of 2007/2008, was a major economic downturn in the United States with a wide reach, negatively effecting individuals, institutions, and foreign countries. The crisis was sparked from lax lending standards, government interference in a public market, and extremely speculative behavior. More specifically, after examining research from a wide variety of research from several credible sources, it is obvious that U.S Government and Government-Sponsored Entities (GSEs), Fannie Mae and Freddie Mac, along with credit rating agencies, were the primary organizations that fueled the credit crisis. Background and Timeline The timeline for the subprime crisis dates all the way back to 1983, when Solomon Brothers and First Boston created the product that was at the heart of the financial crisis, collateralized debt obligations (CDOs). Moving forward, in 1992, Congress mandated that Fannie Mae and Freddie Mac mandated the two entities to set aside 30% of their portfolio for loans to those who are below the median income level for their geographical region. This act was referred to by Congress as the “Affordable Housing Goals”. Before this, Fannie Mae and Freddie Mac were required to only buy mortgages that would be considered acceptable for institutional investors (Wallison). In 2001, following the Dot-com bubble, Allen Greenspan drastically lowered interest rates which in turn increased investment in
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