VOA慢速英语2009年-THIS IS AMERICA - How a Housing Bubble Bur（在线收听）

VOICE ONE:

Welcome to THIS IS AMERICA in VOA Special English. I'm Steve Ember.

VOICE TWO:
　
A repossessed home in Denver, Colorado, in May 2008

And I'm Fritzi Bodenheimer. This week on our program, we examine some of the causes of the financial crisis.

ALAN GREENSPAN: "We are in the midst of a once-in-a-century credit tsunami. Central banks and governments are being required to take unprecedented measures."

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That was Alan Greenspan last October at a hearing in Congress. He was chairman of America's central bank, the Federal Reserve, from nineteen eighty-seven to two thousand six.

Some people think the policies of the Greenspan years helped create the conditions for that "tsunami." But there are many players in the story of the financial crisis, a crisis that raised fears of a Second Great Depression.

At the heart of that story, though, is one thing: housing.

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Owning a home has long been considered part of the American Dream. To help finance homeownership, Congress created Fannie Mae and Freddie Mac. These two companies buy home loans. That way, the lenders have more money to lend.

Fannie Mae and Freddie Mac are called government-sponsored enterprises. Congress gave ownership to shareholders. But the companies could borrow private money at reduced cost because investors believed the government would guarantee their debts.

Belief became reality last September. Both companies had too much debt and not enough capital to protect against huge losses. The government took control to prevent their collapse.

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Fannie Mae and Freddie Mac own or guarantee more than five trillion dollars in home mortgages, around half the nation's total. They keep some as investments. But others are combined and sold as mortgage-backed securities.

Another government-sponsored enterprise, Ginnie Mae, created the first mortgage-backed securities in nineteen seventy.

Creating these securities became very profitable. Big investment banks even bought their own mortgage lenders.

But other lenders were happy to sell their mortgages. They could count the deals toward profit. And if the loans were not repaid -- well, they were someone else's problem.

Philip Budwick is a finance professor at George Washington University in Washington, D.C. He explains how lenders used to think about risk.

PHILIP BUDWICK: "In the old days, you lent out money, you kept that loan on your books, which means you had to have really tight risk management in place. You had to verify who the borrower was, their ability to pay, what kind of credit risk they were. And you were limited to how much money you could lend out based on your balance sheet."

Securitization grew, fed by investors’ hunger for high returns. Lenders, not surprisingly, became less interested in the quality of the loans they were making.

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But something else also changed in the years leading up to the crisis.

Growing numbers of homebuyers were people with poor or limited credit histories. The higher risk of these "subprime" borrowers meant that lenders could charge them more.

Many people borrowed more than they should have. There were borrowers who lied to get loans, and lenders who did not care. Banks and other lenders also began to offer products that borrowers did not always understand.

Buyers were able to make small payments for the first two or three years, often on loans for the full value of the home. Such plans can work -- as long as home values continue to go up.

And for years they did. Nationally, the S&P/Case-Schiller index of home prices rose one hundred twenty-four percent between nineteen ninety-seven and two thousand six. It was easy to believe that the sky was the limit.

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The addition of large numbers of subprime mortgages meant a bigger market for investors. Credit rating agencies rated many of these securities as high quality investments. The agencies are paid by the companies that issue securities.

But this was only the start. Investment banks created even more complex securities based on home loans and other debt products. Even their name is complex. Collateralized debt obligations were designed to offer investors different levels of return based on different levels of risk.

Many of these C.D.O.s had a form of insurance called a credit default swap. Credit default swaps can protect bond buyers against losses. But some were being used to bet against a company's financial health.

The idea behind collateralized debt obligations is that they spread the risk among many investors. More than half a trillion dollars in C.D.O.s were sold in two thousand six. By then, however, the housing market had already started to collapse.

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The collapse started with the failure of subprime borrowers to pay their loans. Home foreclosures grew. And subprime lenders started to go out of business.

The trouble quickly spread to Wall Street investment banks. Hedge funds were next. These investment groups depend on borrowed money to buy long-term securities.

Among the hedge funds were two operated by the investment bank Bear Stearns. By July of two thousand seven, both funds were almost worthless. They had mainly invested in collateralized debt obligations. No one wanted to buy their C.D.O.s at anything near the stated value.

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Matthew Richardson is a finance professor at the Stern Business School at New York University. The failure of the two funds, he says, was a tipping point. It then became clear to investors that the housing bubble had burst. Mortgage-related securities were far riskier than anyone had believed, or at least had been willing to admit.

The following months brought concerns and suspicions about risky investments in so-called toxic assets. Banks became afraid to lend to each other. Credit markets froze. This set off a chain of events that threatened the whole financial system.

The system had grown more complex and interconnected, especially in the last ten years or so. A "shadow" banking system had developed largely beyond the reach of rules for traditional banks.

These non-traditional bankers included investment banks, hedge funds, money funds and companies that insured debt like those C.D.O.s. They all had something in common: They were taking on huge amounts of debt and liabilities with very little capital left in reserve if things went wrong.

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By March of two thousand eight, thing really started to go wrong. Lenders cut off loans to Bear Stearns. And investors wanted to get their money out.

The Federal Reserve led by Chairman Ben Bernanke and the Treasury Department under its former secretary, Henry Paulson, intervened. A thirty billion dollar loan from the government helped get JPMorgan to buy Bear Stearns.

Then, in September, Wall Street lost all four of its other big investment banks. The government persuaded Bank of America to buy Merrill Lynch. But officials decided not to rescue Lehman Brothers.

Lehman's failure not only became the biggest bankruptcy in American history. It also shook whatever trust remained in the markets, deepening the crisis.

The last of the investment banks -- Goldman Sachs and Morgan Stanley -- became bank holding companies. That change meant they were agreeing to accept greater supervision.

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And what about that insurance we talked about earlier that was supposed to protect investors in the C.D.O.s? Many of the companies guaranteeing that debt did not have enough capital to pay claims when mortgage securities went bad.

A.I.G., the American International Group, was the world's largest insurance company. In a free-market economy, companies are supposed to be free to fail. But the government was aggressively trying to contain the crisis. It decided that A.I.G was "too big to fail."

A.I.G. and the bond insurers that guaranteed mortgage securities took the same chance that the investment banks did. They thought housing prices would continue to climb. In short, says finance professor Matthew Richardson, they made a bet without enough money in case they lost.

MATTHEW RICHARDSON: "So essentially we ended up with a two to three trillion dollar bet that was tied to the whole credit market, but especially to real estate. But no capital was underlying it."

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By now, the world's largest economy might not be in danger of "falling off a cliff." Yet it still faces a long climb out of a deep recession that began in December of two thousand seven.

Even so, the housing market has lately been showing some hopeful signs of new life which could help a recovery.

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The conditions that led to the financial crisis -- a housing bubble and too much debt -- were not new to financial markets. But today's globally connected financial system was new. That, combined with the complex yet supposedly safe products dreamed up by a new generation of financial engineers.

Finance professor Matthew Richardson at New York University sums it up this way:

MATTHEW RICHARDSON: "That’s the surprise of this crisis, is, you know, we’ve always believed that risk was being spread around the world. But, in reality, it was just concentrated at some big financial institutions."

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VOICE TWO:

Our program was written and produced by Mario Ritter. I'm Fritzi Bodenheimer.

VOICE ONE:

And I'm Steve Ember. Join us again next week for THIS IS AMERICA in VOA Special English.