The current economic situation we are in is one that has never been felt before. The United States with a recession that continues to get worse with each market day, and despite all of the relief efforts, we are still a long ways away from fixing the problem. President Obama is faced with a trillion dollar deficit, high unemployment, an inflating dollar, a growing trade debt, and a shrinking manufacturing sector. The one question millions of Americans are asking is, “How and when did this all start?” The answer can be found a decade ago, in a complex system that includes real estate, investment, lack of regulation, and most importantly greed.

Major American banks used to employ a home mortgage policy called redlining. This simply meant that the bank would pull out a map of a city and on it would draw redlines around sections of the city that they felt should receive any home loans. The reason was that people within these redlines were not financially capable of repaying any loans. Under President Bill Clinton, a plan called the National Homeownership Strategy was established. The National Homeownership Strategy began in 1994 when Clinton directed Housing and Urban Development Secretary Henry Cisneros to come up with a plan, and Cisneros convened what HUD called a "historic meeting" of private and public housing-industry organizations in August 1994. What resulted was the promotion of loan institutions extending mortgages to borrowers in the redline zones. At the time this looked like a boon for the United States, because so many Americans were becoming first time homeowners, thus promoting the “American Dream.”

In the late 1990’s and early 2000’s homeownership rates were skyrocketing. Major banks like Citigroup, Indymac, and Washington Mutual started dipping into the redlines and extending loans to people with shaky incomes. Likewise, other, smaller loan institutions like Quicken Loans, were also extending what is called a sub-prime loan. As a result, people who would simply state a false income to a loan officer would become approved for a loan that in theory would take them 100 years to pay off. This is where the greed comes in to play on both sides of the issue. Some people blame the loan officers for not doing their homework and really checking to see if the borrowers can payoff the loan, and others blame the borrowers for signing a deal they knew they could not pay off. The truth is they are both to blame. Both were greedy, the borrowers because they got the home, and the loan officers because they got commission on each loan extended. Thus creating the housing bubble.

This problem was even further exacerbated by the fact that all of these loans were packaged up and sold as investments. Contrary to what one might think, investors actually bought these packaged loan investments despite the fact that all of these loans were superficial and bound to fail. One might ask why someone would put their money into something that was doomed to fail, and the answer is the investors were misled. Every possible investment package goes through one of three investment grading institutions (Moody’s, Standard & Poor, Fitch). Ideally all of these packaged investments would have received a grade of D or CCC-. Instead, most of these packages were given grades of AA or AAA, meaning they were safe investments. Because of that, everyday American consumers like us bought into these packages through mutual funds, and thus became a part of almost everyone’s investment portfolio.

In late 2007, the housing bubble began to pop, and thousands of Americans began to default of their loans. This left the banks with hundreds of homes they could not sell. Banks lost out on millions of dollars, and started to fail as a result. This led to the value depletion of all the loan packaged investments, and the loss of billions of dollars in Americans portfolios. This shocked the stock exchange, which prompted it into the downward spiral that it is in, causing even more loss. Thus, the United States has found itself in a position where consumers are spending less and saving more, causing the manufacturing sector to crumble, and unemployment to rise due to decreased consumption. And in an effort to dig ourselves out of this hole, the President and Congress are running up trillion dollar tabs in bailout and stimulus money, further contributing to our national debt, and inflating the dollar more.

When looking back to the cause of it all, the answer can be found in thousands of empty homes around America where desperate borrowers, and greedy loan officers cut sub-prime deals on even more sub-prime loans. It all boils down to greed and “sub-prime” judgment…