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How the Government Caused the Financial Crisis
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How the Government Caused the Financial Crisis



Published in Economy & Finance , Business
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  • 1. By 2008, before the US financial crisis began in earnest, 28 millionsubprime loans were outstanding in the United States—half of all USmortgages—and 74 percent of them were on the books of government agencies orgovernment-backed or -regulated entities.
  • 2. In 2009, one in four taxpayersitemized mortgage interest,accounting for about two-thirds ofthe mortgage interest paid by allborrowers.
  • 3. Since 1986, residential mortgage debt has increased from 39 percent of gross domestic product to 50 percent in 1999 and then to 75 percent in 2007.1986 1999 2007
  • 4. During 2003, equityextraction totaled $400 billion, with over $700billion extracted in each of 2004 and 2005.
  • 5. The average U.S.homeowner hasless than 7percent equity inthe home. Asrecently as 1990, U.S.home equity was 45percent.
  • 6. By 2008, before the financial crisis,Fannie and Freddie . . . either held or had guaranteed 13.4 million subprime or other nonprime mortgages; the government as a whole . . . held or had insured over 20 million similar nonprime mortgages.This amounted to 74 percent of the28 million nonprime mortgages present in the U.S. financial system before the financial crisis.
  • 7. In 1989, only 1 in 230 homebuyers bought a home with a down payment of 3 percent or less, but by 2003 1 in 7 buyerswas providing a down payment at that level, and by 2007 the number was less than 1 in 3.
  • 8. In 1993 the FHA began to increase the percentage of its loans thatinvolved down payments of less than 3 percent. 13% in 1992 28% in 1996 50% in 2000
  • 9. The FHA has increased its market shareof home purchase loans, from 8 percent in 2007 43%to 43 percent in 2010. 8%
  • 10. In 2006, 20 percent of all originations were subprime mortgages and aboutthree-quarters of these were securitized.
  • 11. Underlying the giant housing bubble that drew private institutions in was a government investment that in 2008 consistedof 20.4 million subprime and otherrisky loans—about three times the size of the PMBS market.