Investing 102

[Vegas69]

I have a new book that lays out all the stock market crashes. I just finished the 2008 segment. This 30 year old kid had his horse blinders on and should've been investing MORE. Of course the real estate market sucked and I had too many shiny new parts to buy for an old beater. The Dow got down to 7 or 8k just 10 years ago. WOW

What led to that crash:

In 1981, Option Arms were approved by the government. That meant a homeowner could pay less than the minimum and add to the mortgage balance EVERY MONTH vs. paying it down.

In the early 90's, lending became much more flexible with little to NO down payments which led to ever increasing subprime loans. This was to help BROKE people buy houses. How could that go wrong?

About this time, banks figured out a way to keep less assets on the shelf buying insurance against losses letting them lend more. GREED AIG was the biggest insurer.

Next, banks started assembling caches of mortgages and selling them to big investment companies like Lehman and Bear Sterns and creating stock funds. Most of them subprime with a high likelihood of default. Nobody thought houses would go down in value.

Pension funds had stayed away from risky investments until banks found a way to rate these caches of mortgages favorably. Then the pensions bought these toxic assets.

Lastly, Greenspan kept the interest rates low for way to long as he didn't see much inflation in the market. He missed the HUGE INFLATION in the housing market.