How the FEDS Killed the Market

So why the crisis, why the housing market, why the banks, and why the need for a huge stimulus package? The housing crisis started in OSU's favorite state, Michigan, and more specifically, Detroit. The housing market began to diminish in Detroit as the auto industry became more technologically advanced. Flint Michigan was GM’s largest producing plants until it moved out of country. This alone left hundreds of people searching for work, flooding the labor market. Labors that once owed mortgages on homes and took out loans from GMAC for their new cars, where left with no job or a lesser of a paying job that did not keep their head above water. But it was not just GM, all auto makers, began either relocating to places were property tax is less or moving to advances in technology, that lessened the need for labor.

In reaction to the decrease in need for labor and mortgages left unpaid, banks began to lose money. But it was not Detroit alone that ruined the economy, the government helped. It helped by lower the interest rate on home loans. During the early years of Bush’s term, the FEDS lowered the interest rate from about 6% to about 1%. This caused the banks to do the same. In reaction, banks started dishing-out more loans at a cheap rate. This gave people the false perception that you can purchase a relatively expensive home or property for a low interest rate and assume the interest rate will not increase. So as the demand for homes increased, the number of loans increased, until we witness the bubble burst.

People assumed that the market for housing was doing great, cheap loans for beautiful homes. This gave the consumers a false perception and consumers purchased expensive property and homes in places like Florida and Arizona, were generally prices for loans can make property that nice out of reach. But the increased spending and the increased building of homes and the increased interest rate that was bound to rise again; did; leaving places like Florida and Arizona in a housing market disaster.
NOTE TO READER! This is only a small part of the big picture.