In the lecture video, The Housing Bubble, the 2008 recession was discussed. They describe that the United States went from having what they call a “stock market bubble” to having a “housing bubble”. The speaker claims that equity will fall out for homeowners once the housing prices fall, and said housing prices are the reason many people are moving and leaving their houses. The housing market broke, and since no one understood the why behind it, Americans were then trying in vain to fix the market by doing exactly what had broken it.
The narrator describes that in order for the population to understand why it broke, there first needs to be an understanding of how the economy was even supposed to work and function in the first place. He describes that the idea of the market is for people to have savings. These savings would grow and in this putting aside money in the moment for a future purchase consequently lowered the consumption of the now. Then there is this cycle of less consumption in order to place money in savings, then a heightened consumption later when enough money has been saved.
Then there comes the issue that the United States isn’t actually a free market anymore. The government is printing money, with no resources behind it. So then there are artificially low interest rates that tell the entrepreneurs that consumers have more savings than what currency exists in the market. Because of this lack of savings and correct portrayal of what savings the population has, markets are going to have allocated funds which is what happened to the housing market. The consumers decided to borrow money instead of saving, claiming the free market. This entire idea then sparked a movement to spend more money than a person currently has. They do this by borrowing money instead of saving, constantly, and spending the money because the interest rate is low.
The narrator later claims that there are different types of mortgages. The subprime mortgage and the alt-a mortgage, which is commonly referred to in the video as the “risky mortgage”. He describes that together the mortgages are non-traditional because in a traditional mortgage, there were certain quality levels that the subprime and the alt-a mortgages don’t have. He then talks briefly about down payments. He says that a person has to be able to pay the down payment on the house, but then the bank will help them with loans to pay off monthly. This has caused an increase in people continuously buying homes that they can’t actually afford, the only reason that they could afford it at one point is that the rates were artificially low for a brief time. But now, those people can’t afford to make their payments toward the house they bought once the rates become higher back to their normal spot.
Later in the lecture, they explained that the bank was told they had to make loans. They had to make mortgages. If they didn’t they were going to be penalized, so obviously, the banks began to make mortgages. The issue here is that in order to avoid penalization, they were giving people mortgages that they didn’t need. Which in turn gave a lot of different people debt that they couldn’t afford to pay back. These programs' beginnings were to help people, yet with the unnecessary penalization of banks, the idea backfired and created more problems. He says that with Frannie Mae and Freddie Mac, banks were actually able to write mortgages without any regard for the riskiness of the borrowers. They then don’t really care about whether they pay it back or not because they could later just sell the mortgages to secondary markets that were created by Frannie Mae and Freddie Mac.
The lecture then later discusses the actions taken by FDR over gold. They say how he wanted to print more money but couldn’t do that unless money wasn’t linked to gold. So FDR signed a legislature that took the United States off of the gold standard. This happened amidst the Great Depression, and as people rushed to get their gold, they now had none. And to take it further, the people would be fined if they didn’t turn in their remaining gold by confiscating it illegally. But by printing more and more money illegally that isn’t backed by gold you then have dollar inflation.
There wasn’t much about this lecture that I technically disagreed on or wanted to argue over, *but rather talk about how the change from being backed by gold to now being backed on nothing. How was this change, if it was illegal as the lecture said, kept in the long run? Is there any move to be backed by something in the future? And what will happen if we continue on this route of being backed by nothing and just printing money? *