[fabsroman]

There isn't any one thing that started this problem. Some, like me, say it started about 10 years ago. Others say it started 30 years ago when Carter passed legislation that reduced regulations on banks. Some, mostly democrats, say it started 3 or 4 years ago.

My theory is this. The stock market went utterly crazy from 1996 to 2000. You could have put money into almost anything and it was sure to go up. Stocks were being bid up on nothing but a gut feeling. It used to be that investors would buy stocks based upon how the company was doing. Essentially, they would look at the company's financial statements, look at the price to earning ("p/e") ratio, and then decide what to spend for the stock. That wasn't the case in the mid to late 90's. A friend of mine "made" $400,000 on an IPO, and then lost it within a week when the stock tanked. People were buying on credit because they felt like they were rish based upon their portfolios. Greenspan kept warning consumers about this because these were called paper profits and not actual profits because the profit isn't realized until the stock is sold. Enter 2001/2002, and the tanking of the stock market. People had a bunch of credit and no money now.

So, the stock market wasn't a good place for investors' money anymore and they needed to find a place for their money. Where to invest? Where to invest? Ah, real estate. They aren't making any more of it, so the supply is limited. What a great idea for an investment. Plus, real estate is safe.

Everybody started investing in real estate. People would buy and flip condo contracts before the condos were even built. Kind of like people buying IPO stocks and flipping them. Real estate prices were going through the roof, just like stocks were. Banks weren't scared of lending because the collateral was actually aprpeciating. Banks felt as though they could alway recoup their loan even if the loan was at 100% of the appraisal value because the properties were going up 15% to 20% per year. Finally, it started to go bad when the everyday joe couldn't easily afford a home, yet stretched anyway with a 3/1 or 5/1 ARM hoping to be able to refinance it or make enough to pay the increased payment amounts in 3 or 5 years. They weren't able to make the payments when the loan rates readjusted, and the loans were foreclosed upon. A lot of foreclsoures occurred because a lot of people stretched too far to buy a home. With so many foreclosures on the market, real estate prices started going down. Now, the lenders had a lot of loans that were under secured, and a lot of those defaulted too. Not only were the borrowers in credit trouble, but so were the lenders now. Problem is, who is going to loan money to the lenders?