What are the main reasons behind financial crisis?

Fanny Mae and Freddy Mac guaranteeing bad mortgages, They lent to Morons that had a 3rd grade education in Math and signed contracts, then they sold these mortgages off to other countries and people as triple AAA investments, that means very little risk of loss on Principle. But it was also greed. people flipping houses, buy a house for 250k and wait 6 months then sell it for 450k. when the bubble burst these flippers got FLOPPED!What are the main reasons behind financial crisis?
There are many complex answers, but put simply, greed is the main reason. Banks wanted big cash flows so their profit ( a percentage of that flow) increased. They had policies for not lending to unqualified buyers, but at the same time they pushed their people very hard to make more loans and they turned a blind eye to the future when the loans would go bad because the people couldn't pay the mortgage on their houses. The previous administration could have enforced regulations on banks, but choose not to. When banks start failing everyone gets nervous and stops investing and the result is a financial crisis (read "depression").
A lot of people kept borrowing a lot of money to buy things they couldn't afford in terms of their savings and incomes. Which caused inflation of prices for the things and the services people were buying with borrowed money. Because all of that borrowing enabled the people to pay higher prices than they could afford.



But there is a limit to how big people's debts can get before they run into trouble with making payments on their debts. That limit many people have now reached. And that's what's causing the current economic crisis.



People can't borrow and spend like they used to. Which causes the prices for things that people were buying with borrowed money to crash. While people's debts remain just like before.



And when people can no longer make payments on their debts due to job losses and looses of income. Then the banks that loaned the money end up taking big losses too. Because all they can do is take back the property that was bought with borrowed money at inflated prices. And much of that property now cannot be sold for nearly as much as the borrowers have originally paid.



Basically, it was inflation caused by too much borrowing. And now it's deflation due to large losses on many bad debts. Too much borrowing and spending in the recent past is the cause of it all.What are the main reasons behind financial crisis?
This is my take on it.



There was too much competition for the mortgage business in the United States (and elsewhere). There were no reasonable rules set up. People were being offered deals on mortgages to buy houses they could not afford. This was done through subprime mortgages, waiving reasonable down payments, giving cut-rate interest rates for the first two years, allowing people to take out mortgages when the payments would be over half of their income. Stuff like that. This caused a great increase in demand which caused the prices of houses to go up. This led to larger mortgages and more unmanageable payments for too many people.



Then, the United States got into the Iraqi War and funded the war with debt. This caused interest rates to go up because of the increase in the demand for funds. This affected mortgage markets. When people were renegotiating their mortgages after fixed terms were up, too many of them could not afford the higher payments caused by the higher interest rates. This led to the banks foreclosing and tightening credit. Houses flooded the market which caused prices to go down. Then, when further people were renegotiating, due to the lack of adequate down payments, the value of the houses was less than the value of the mortgages. This caused some people to walk away from their houses (their mortgages were worth more than the houses and they could live more cheaply elsewhere) while the banks wanted the difference between the value of the mortgage and the value of the house before they would renew. This caused a whole bunch more foreclosures and more houses on the market. Prices of houses went down more and more. The banks and other financial institutions took more and more losses, threatening the viability of major American banks (as well as those of other nations where inadequate safeguards had been in place).



This has led to the credit crunch and where we are today.



There have been steps in the right direction. I read about the 38% of gross income figure being used as a limit for what people could be allowed to borrow for a mortgage. This is still not at the level of 32% which is used in Canada but a big improvement. Hopefully, Obama makes other rules that prevents this from happening again.
the main reasons are greed, greed, and more Greed.

ppl don't seem to realize that the money didn't vanish into thin air. that money went into ppl's pockets. the top 1% club to be exact



*Edit

stop blaming the homeowners. they had jobs when they bought those homes, economy took a nosedive and now no one can pay any mortgage when their jobs and careers are being chopped down wholesale. ppl can't pull money out of thin air you knowWhat are the main reasons behind financial crisis?
Our country's economy was essentially based on the paper value of homes. People wanted to buy homes so home values kept going up. When they built more houses so people could buy them, they built to many. Supply exceeded demand and less people wanted a home, so home values dropped. When home values dropped, people were paying a $300,000 mortgage for a house they bought in 2005, but the house wasn't worth that much anymore. They were overpaying, and that meant they were losing money, which made it harder for them to pay their mortgages to the banks and they started to default their loans. Then the banks started losing money because they had given money to people who couldn't pay it back anymore. Essentially, the banks and the people who were getting loans from the banks had too much faith in the paper-value of homes, they thought home values would keep rising, but they didn't. They mistook paper value for real value. Real value is constant, things with real value are things like food, things we need to survive; basically things people used in the barter system. Paper value is just a speculation and is subject to change based on how much people want something. In the barter system gold is just a shiny rock and a $100 bill would be a scratchy tissue. Too few people understood this, politicians included, and it is why our country hasn't increased its productive capacity, and therefore true value, in decades. Until we become a country that produces goods that have true value, we will never have a fundamentally strong economy.



Watch this video: http://www.youtube.com/watch?v=2I0QN-FYkpw



This guy understands what makes a strong economy. He is so dead on its almost hilarious.
there are three establishments to blame

first there is us who bought allot of things on credit, people buying things they couldn't afford.

the banks having been left to there own devices did not regulate themselves.

and the government for allowing the banks to go on doing this without being warned what they were doing wrong.
groups on the left forcing banks (by threatening to put them out of business for discriminating against less fortunate people, and minorities)



to give out home loans to people who could not afford them..



soon they were upside down on their mortgage and people just end up walking away from their homes and board up the windows :)
Most everyone, including our government, spending money they don't have.



The American way... CREDIT