The subprime mortgage crisis

The subprime mortgage crisis started in 2007/8. By 2011 the crisis had spread and was reverberating around the world, the biggest bust since the Wall Street crash of 1929. Almost immediately, the UK followed the USA over the lemming cliff. (Google images has a page for lemming cliff jokes). Such is the “special relationship”. Iceland, the model of the free housing market also entered a major crisis. A number of ex-Warsaw Pact countries began to struggle with high home ownership rates and high debt, as did Club Med countries. This became worse after the introduction of the Euro on I January 1999.

Barack Obama became President in 2009 and worked to salvage and resurrect the failed banks. No bail-out was available for home owners who had financed their homes from subprime mortgages, then lost their jobs in the depression. But the banks were saved.

Six years after the resurrection of Freddie Mac and Fanny Mae – at enormous cost to the US taxpayer – the consequences of this major crisis are still with us. At the same time the next boom is building up, curiously in part fuelled by the oil glut aimed at weakening Russia. This is something of a repeat of the 1980s oil glut beginning in 1980 and increasing for the next 6 years, a glut that hastened the demise of the USSR, which then opened the way for NATO and the EU to expand eastwards, into Georgia (see the post on this in EU: Ramshackle Empire). What is happening now is a parallel to the 1980-86 oil glut.  

What the subprime mortgage crisis did was to force everyone to once more recognise the central role of housing. Housing researchers were told to take advantage of the new wave of grants by using our housing “know-how” to help the new member states to boost their home ownership rates.

Subprime mortgages continue to be issued. Indeed, subprime mortgages have been extended beyond housing, especially to cars, both new and used, on the never-never. They are sometimes called subprime auto loans. See and 19 July 2014 reports the following:

Rodney Durham stopped working in 1991, declared bankruptcy and lives on Social Security. Nonetheless, Wells Fargo lent him $15,197 to buy a used Mitsubishi sedan.

“I am not sure how I got the loan,” Mr. Durham, age 60, said.

Mr. Durham’s application said that he made $35,000 as a technician at Lourdes Hospital in Binghamton, N.Y., according to a copy of the loan document. But he says he told the dealer he hadn’t worked at the hospital for more than three decades. Now, after months of Wells Fargo pressing him over missed payments, the bank has repossessed his car.

For the UK see

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