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The Housing Bubble
The U.S. housing bubble refers, fundamentally, to the rapid and dramatic decline of home values from their peak in early 2006, of approximately $31 trillion, to their current value of approximately $22 trillion dollars. As foreclosure rates increased, one crisis after another surfaced with respect to related financial markets. In 2007, the housing bubble was declared by the U.S. Secretary of the Treasury to be "the most significant risk to out economy."
The collapsing housing and credit markets not only had a widespread, negative impact on the value of U.S. homes, but also was the precipitating factor to a nationwide recession. In response, President George W. Bush and the Chairman of the Federal Reserve Ben Bernanke announced a "bail out" of the U.S. housing market for homeowners who were unable to pay their mortgage debts.
However, despite the allocation of $900 billion by Uncle Sam in 2008 (more than half going to Fannie Mae, Freddie Mac, and the Federal Housing Administration), the housing market continued to deteriorate and, in late 2009, the Treasury Department made an unprecedented move in providing Fannie Mae and Freddie Mac unlimited financial support for another three years; despite Fannie's and Freddie's losses in the hundreds of billions of dollars. This promise of unlimited support was seemingly at odds not only with the powers granted to only the U.S. Congress by the U.S. Constitution, but also with the spending limits imposed by the Housing and Economic Recovery Act of 2008.
The bottom line here is that the bailout funds allocated by the U.S. Government to assist in the recovery of homeowners (who, at the same time, were experiencing sky-rocketing costs of just about everything) never really made it to the homeowners through the so-called "mortgage modification" and other home-owner relief programs. Instead, the money was substantially diverted for the major benefit of the of the nation's major banks and power-house financial institutions. As a result, it can be further argued that the bursting of the housing bubble will have an extended impact and cause further, unnecessary devastation and demise to some 10 to 15 million homeowners who are in pre-foreclosure stages hoping that the economy will take a sudden turn for the best.
For many homeowners, the net effect of the housing bubble was to "turn their individual balance sheet upside down;" as the portion of their net worth that was derived from equity in their homes had, literally, vanished into thin air.
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