The stock market is high….right?
Things seem fine (sort of)….right?
Well, just remember that things likewise felt just fine before the last crash…
“My biggest fear is people forget just how bad things got…and how quickly.”
The US Financial Crash
(PLEASE WATCH…AND SHARE THIS VIDEO!)
In 2008 the US financial crash became the biggest financial disaster since the great depression in 1929. Now recognized as the “great recession”, it was a time when housing prices dropped more than 30% and so heavy as the impact of the US financial crash that even two years later, the employment level was still over 9%.
To many, the 2008 US financial crash wasn’t a surprise, some saw signs as early as 2006 when the prices of real estate began to drop. In the following years, far too many people with unworthy credit were granted loans for 100% of the total cost of new homes. How did this come about? The Gramm-Rudman Act is where many point their fingers. The act increased the demand for mortgages by allowing banks to trade profitable derivatives that they sold to their investors. It wasn’t long before banks began to realize that they would have to absorb any losses and borrowing between banks became less appealing because no one wanted to be left with – to reference the child’s party game “musical chairs” – no chair when the music went off. As trust in banks began to wane, the Federal Reserve tried to stabilize the economy by funneling in liquidity to the banking system but it was too little too late. The government was left to bail out losing financial institutions and build scaffolding around what was left of the economy with the American Recovery and Reinvestment Act.
So why are we in trouble again?
The Dodd-Frank Wall Street Reform Act which was passed to stop banks from taking on too much risk by allowing the Fed to downsize banks that become “too big to fail”. It was designed specifically to stop a repeat of the 2008 financial crash. Unfortunately, in May 2018, Congress loosened up those rules established by the Dodd-Frank Act so that now, only banks with $250 billion in assets must comply with the Dodd-Frank Act and provide reports that ensure that they are following fair-lending rules. The original act made this mandatory for all banks with $50 billion in assets. So, as more banks are left to self-regulate, debt is growing, and we’re headed in the direction of another US financial crash!