

	In 2007, the United States of America fell into a crushing financial crisis. Unemployment increased, the housing market crashed, and many of America’s largest and most important corportations were left in ruin. This recession persists today, so we must ask the question: how did this crisis occur, and how can we stop it? In short, the financial crisis was created by selfish and naïve political decision-making that pressured banks and firms into issuing sub-prime loans into an already immature and unsufficient financial infrastructure. Meanwhile, Fannie Mae (FNMA) and Freddie Mac (FHLMC) were pressured to underwite and repackage these mortgages into CDO’s and CDS’. When borrowers defaulted on these loans, the banks were short on capital reserve and transferred this chaos onto the repacked mortgages that they had sold, and on to the rest of the economy.
	The financial crisis had its roots in 1999 of the Clinton era, as the President was aiming for a second term in office. He sought to extend his presidential tenure by augmenting his popularity. To accomplish this the Clinton administration relaxed lending restrictions, which helped to set the grim stage for the sub-prime crisis seven years later.  Steven Holmes of the New York Times reported in 1999, “Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.” Holmes would go on to correctly foresee the consequences of these actions: “But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980s.” As detailed in the introduction, and as Holmes foresaw, ill-advised lending would certainly lead to the meltdown of the economy.
	Many factors combined to throw the economy into tailspin, one of which was the new and complex structure of mortgages. Adjustable-rate mortgages, mortgage-backed securities, and collateralized debt obligations (CDO’s) were all used extensively in the years leading up to the crisis, and only served to intertwine more sectors of the economy into the housing market. This led to U.S. households, and financial markets in general, to overleverage themselves in the housing market, leaving them extremely vulnerable to even small changes in price. 
	Indeed, the housing bubble burst, and the financial institutions that had bought these mortgage-backed securities were spited. The top five U.S. investment banks all together reported $4.1 trillion dollars of mortgage debts in 2007, which accounted for about 30% of the USA’s GDP. In the end, Bear Sterns and Merrill Lynch were sold exceptionally cheap, Lehman Brothers was dismantled, and Goldman Sachs and Morgan Stanley were forced to become commercial banks subjected to intense regulation. Fannie and Freddie were $5 trillion in mortgage debt, and were placed under government control in September 2008.
