Housing Bubble and Economy
A few years ago when Alan Greenspan, the former Chairman of the US Federal Reserve, was questioned by a special committee on aging set up by the Senate, he said that he did not envisage an increase in home prices. However, reality shows that Greenspan was wrong in his assumptions. |
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The US faced a housing bubble and this fueled the economy of the country. People were buying homes, developers were buying land and developing housing projects, and the banks were giving out mortgages to any and everyone. This created a false sense of security that the economy of the United States was flourishing because money was flowing into different housing projects and jobs were being created in this sector.
People were all rushing to buy homes; developers were building them; while the banks were financing not just the mortgages but also development projects.
Therefore, when the housing bubble burst, the housing sector was first to be affected. This, in turn, affected financiers and banks who had invested heavily into land and housing projects. However, it was the common man who suffered. The number of foreclosures during this period was unheard of in the US. Many people became homeless, especially the older age group.
The banking industry was also severely crippled once the housing bubble burst. Many banks needed government money to be bailed out of their financial crises. They were saddled with mortgages that the borrowers could not repay. This had a domino effect on many other industries and sectors which ultimately lead to recession that spread internationally.
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