Somewhere among my terrible penmanship and poorly drawn characters is the reason our housing market crash in America…I promise.

Today in class we will wrap up our week long conversations about economy and the recent economic recession we have experienced recently here in America. We have been focusing on the raise and fall of the US housing market and how this contributed to the recession. Below I have translated the points that are seen on the board in the picture and given the cliff notes version of our discussions.

• This whole problem started with people that wanted loans that didn’t necessarily have the means to pay them back in full.
• These people that wanted loans were given the loans by lenders and banks that ultimately lower their standards so that more loans could be given out. These lenders were making a ton of commission money by giving out these bad loans, and the banks were not worried that people were unable to pay back the loan.
• The reason they were not worried was because they then would take the loan or mortgage and sell it to a broker on Wall Street…the philosophy at these point quickly becomes “it’s not my problem”.
• These brokers would basically take all these really risky mortgages and put them into a “toxic pool” that are known as CDO’s. These CDO’s were made up of tons of mortgages…many of which were very, very risky mortgages.
• These CDO’s were then sold to big time investors that we refer to as “Global Pool of Money”. These pool is made up of business, organizations, and banks that had a ton of money and wanted to invest it in something that would provide a high return for a long time. These were very attractive because interest rates on homes are fairly high (6-10% or so) and your standard mortgage last for 30 years.
• What ultimately ended up happening was the people at the beginning of our story couldn’t pay their loans, and when they couldn’t pay their loans they lost their property. So many of these houses and properties began to appear that property value drastically decreased making this once lucrative business a shadow of it’s former self.

Now keep in mind that this is the 8th grade cliff notes version…I may of over simplified process but for myself and my class this is a good way to explain exactly what happened. As we move forward past economy, we will start to focus on civics and different forms of governments.

Mr. McClung