The stock market crash of 2007-2009 was one of the most devastating crashes in stock market history. The financial markets were led down by a collapsing real estate or housing market.
Some years ago, the powers that be in Washington decided that we didn't need so many banking regulations. That surely bankers could be trusted to lend money responsibly.
Lending regulations were loosened. A bunch of shady characters decided to go into the lending business (in addition to the Bank CEOs who were already in it) and the game was afoot.
This bunch started lending mortgage money to any and everybody willing to borrow it. They were even using (temporarily) low teaser interest rates to draw the public in.
This increased demand for housing and drove prices sky high.
Once people saw how quickly real estate prices were rising, flipping houses became the new get-rich-quick scheme.
Prices rose even faster.
This led to panic buying on the part of would-be home owners. If they didn't buy now, they would soon be priced out of the market.
Prices rose even higher.
What goes up must come down and when the housing bubble burst, real estate prices fell hard. Millions of Americans were upside down in their mortgages.
To add insult to injury, interest rates reset and tacked hundreds of dollars more onto the monthly mortgage payments of the indebted. This led to a barrage of defaults, which led to a banking crisis.
Now, the same banks who just a few years ago were lending money to anyone with a pulse, became unwilling to lend to anybody. As most developed countries run on borrowed money, chaos quickly ensued.
We heard the first rumblings of trouble in late summer of 2007.
As stunning as the fall had been, the bounce off the bottom was just as spectacular. The financial sector (and lots of other sectors) was headed up.
If you had bought a banking ETF (I was too scared to trade an individual bank because I didn't know which one would go belly up next) the week of March 10th and held it until mid June or so, you would have doubled or nearly doubled your money in 3 months.
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