WI: Earlier Hoover Presidency from 1921-1929

You know, I wonder if the Fed had anything to do with either of these two crashes. I seem to recall Fed Chairman Alan Greenspan keeping interest rates very low for a very long time in the mid-2000s.

The Fed's strict monetary policy did contribute to the 1929 crash, although factors such as out of control speculation played a bigger role. Greenspan's lower interest rates have been blamed in some circles as a contributing factor to the 2008 crisis. But even if they are correct, just as in 1929 bigger factors like the real estate bubble bursting and the excessive consolidation of the banking sector were far more important.
 

The Avenger

Banned
The Fed's strict monetary policy did contribute to the 1929 crash, although factors such as out of control speculation played a bigger role. Greenspan's lower interest rates have been blamed in some circles as a contributing factor to the 2008 crisis. But even if they are correct, just as in 1929 bigger factors like the real estate bubble bursting and the excessive consolidation of the banking sector were far more important.
Why was there a real estate bubble in the 2000s to begin with, though?
 
Why was there a real estate bubble in the 2000s to begin with, though?

The bubble itself, like any bubble, was caused by increased sales and investment in real estate that was occuring in the lead up to 2006/07. That wasn't what caused the crisis however. What did precipitate the crisis was the bubble bursting. That was the result of a combination of factors including people buying homes they couldn't afford, the same customers taking out bad subprime mortgages, then mass foreclosures in 2007 when these customers couldn't pay up. Now once real estate went under, so did investment firms like Lehman Bros that were closely tied up in housing.

This article from Investopedia is more in-depth. It's not about the 2008 crisis specifically, but it does provide a really good general idea of how this ugly process works:
https://www.investopedia.com/articles/07/housing_bubble.asp
 

The Avenger

Banned
The bubble itself, like any bubble, was caused by increased sales and investment in real estate that was occuring in the lead up to 2006/07. That wasn't what caused the crisis however. What did precipitate the crisis was the bubble bursting. That was the result of a combination of factors including people buying homes they couldn't afford, the same customers taking out bad subptime mortgages, then mass foreclosures in 2007 when these customers couldn't pay up. Now once real estate went under, so did investment firms like Lehman Bros that were closely tied up in housing.

This article from Investopedia is more in-depth. It's not about the 2008 crisis specifically, but it does provide a really good general idea of how this ugly process works:
https://www.investopedia.com/articles/07/housing_bubble.asp
OK.

Also, does this mean that if banks didn't lower their credit ratings and give loans and mortgages to people with poor credit ratings, then the 2000s housing bubble wouldn't have occurred?
 
OK.

Also, does this mean that if banks didn't lower their credit ratings and give loans and mortgages to people with poor credit ratings, then the 2000s housing bubble wouldn't have occurred?

Maybe (but let me clarify that's just a maybe, not a probably), at the very least it would be more limited and the whole economic crisis would have hurt a lot less people. Like with Hoover, some increased oversight and better management of the economy would have done a lot of good in this case.
 

The Avenger

Banned
Maybe (but let me clarify that's just a maybe, not a probably), at the very least it would be more limited and the whole economic crisis would have hurt a lot less people. Like with Hoover, some increased oversight and better management of the economy would have done a lot of good in this case.
Understood.
 
When talking about the Great Depression or Great Recession, both the structural causes (overproduction, real estate bubble) and the financial chicanery / fraud that made it worse needs to be borne in mind. The question here is: (1) to what extent the latter is curbed, and (2) to what extent curbing the latter also curbs the economic damage of the former?
 
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