Page 80 - Heavenly Signs III by Mel Gable

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As part of the housing and credit booms, the number of financial agreements called mortgage-backed securities
(MBS) and collateralized debt obligations (CDO) were created. These investment vehicles derived their value
from mortgage payments and which furthered the housing price increases. Such financial instruments as MBS
and CDO enabled institutions and investors around the world to invest in the U.S. housing market. As housing
prices declined it resulted in substantial losses. The major global financial institutions that had borrowed and
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invested heavily in sub-prime mortgage-backed securities ended up reporting significant losses.
Falling real estate prices resulted in homes being valued at less than the mortgage loans. This provided a financial
incentive to enter into a foreclosure. The ongoing foreclosure epidemic that began in late 2006 in the U.S.
continues to drain wealth from this nation. It resulted in consumer losses and erosion of the financial strength of
banking institutions. Defaults and losses on other loan types also increased significantly as the crisis expanded
from the housing market to other parts of the economy. Total losses are estimated in the trillions of U.S. dollars
globally. God’s hand can easily wipe wealth from this nation in a fraction of the time it takes for man to make it.
It was through man’s greed that these financial instruments were created and engineered in the first place.

Initially the companies affected were those directly involved in home construction and mortgage lending such as
Northern Rock and Countrywide Financial, as they could no longer obtain financing through their credit
markets. Over 100 mortgage lenders went bankrupt during 2007 and 2008. Concerns that investment bank Bear
Stearns would collapse in March 2008 resulted in its fire sale to J.P. Morgan Chase. The financial institution crisis
hit its peak in September and October 2008. Several major institutions either failed or were acquired under
duress or were subject to government takeover. These included Lehman Brothers, Merrill Lynch, Fannie Mae,
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Freddie Mac, Washington Mutual, Wachovia, Citigroup, and AIG.
U.S. Government policy from the 1970s onward had emphasized deregulation. This was to encourage business,
which resulted in less oversight of activities. This resulted in less disclosure of information about new activities
undertaken by banks and other evolving financial institutions. Policymakers did not immediately recognize the
increasingly important role played by financial institutions such as investment banks and hedge funds, also
known as the shadow banking system. Some experts believe these institutions had become as important as
commercial depository banks in providing credit to the U.S. economy. Nevertheless, they were not subject to the
same regulations.
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U.S. homeowners had extracted significant equity in their homes in the years leading up to the crisis which they
could no longer do once housing prices collapsed. Cash used by consumers from home equity extraction
doubled from 627 billion dollars in 2001 to 1,428 billion dollars in 2005 as the housing bubble built. This was a
total of nearly 5 trillion dollars over the period. U.S. home mortgage debt relative to GDP increased from an
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average of 46% during the 1990s to 73% during 2008 reaching 10.5 trillion dollars.
The U.S. Stock Market peaked in October 2007 when the Dow Jones Industrial Average index exceeded 14,000
points. It then entered a pronounced decline which began to accelerate markedly in October 2008. By March
2009, the Dow Jones average had reached a trough of around 6,600. It has since recovered much of the decline.
It exceeded 12,000 during most of 2011 and finishing above 13,000 in 2012. It has recently exceeded the 15,000
level in early 2013. The market will recover before it reverses in 2017. It is probable that the Federal Reserve's
aggressive policy of low interest rates for banks spurred the partial recovery in the stock market.

125 Lahart, Justin (December 24, 2007). "Egg Cracks Differ In Housing, Finance Shells". The Wall Street Journal.

126 Roger C. Altman. "Altman – The Great Crash". Foreign Affairs. Retrieved February 27, 2009.

127 Financial Crisis Inquiry Commission – Press Release – January 27, 2011
128 Barr, Colin (May 27, 2009). "Fortune-The $4 trillion housing headache". CNN.