What Caused the Housing Bust (2)

Run on the bank (2)


Unfortunately, it didn't take long for some people to figure out that with rates so low, they could buy more than one.

Or even nine or 10.

As more money made its way into housing, prices for real estate went up – 20% a year for several years in some places.

The higher prices created more equity... that could then be used as collateral for still more debt.

This is what leads to a bubble.

Banks, hedge funds, and insurance companies were happy to fund the madness because they believed new "financial engineering" could take lower-quality home loans (like the kind with zero down payment) and

transform these very risky loans, made at the top of the market, into AAA-rated securities.

Let me go into some detail about how this worked.


By Porter Stansberry