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Today in 2010, we see that there have certainly been brighter days in the history of the credit business. Webs of red tape, bailouts and regulation have tarnished the reputation of the credit business, and controversy still engulfs the economic actions that have taken place.
What happened? The answer is incredibly complex and multi-faceted. A number of different banks and credit business webs flooded the market with lots of cheap loans that were widely available to homeowners, and often ones of questionable borrowing quality. The borrowers ended up overbuying, speculating, and sometimes just downright carelessly spending the money and declaring bankruptcy afterwards. This caused prices to escalate rapidly, driving speculation bubbles (which many people remember as â€œproperty flippingâ€) that launched many sections of the real estate market unsustainably upward.
Unfortunately, what goes up suddenly must come down suddenly. When prices reached a point at which almost no one was able to either buy the properties at the exceptionally high prices, or when the high costs could not be paid themselves, many banks went into turmoil and were completely insolvent. And thus, to prevent a bank run, the banks were bailed out. New regulations were put in place in order to prevent what happened before. The question that has yet to be answered is, how successful will these measures be, and how successful have they been thus far. We are told that the economy is rounding a corner now, but we do not know when it will make it’s recovery. Perhaps the better question is, when it does make what many people refer to as a recovery, will we be genuinely at economic equilibrium, or will we be at another peak generated by the mad workings of credit business webs once again?