So that concludes my blog on the causes of the US subprime crisis. I believe all of the factors which I have talked about have contributed with most of them intertwined with each other. The passing of the CRA encouraged subprime lending, which put Fannie and Freddie under pressure to make these profitable loans from their own shareholders. Securitization facilitated the extraordinary growth of the market, a market which was tricked into a false sense of security by the AAA ratings given to these securities.

Everyone has their own ideas on the primary cause of the crisis but I firmly believe that the buck stops with the credit rating agencies. They had a duty of care when rating these securities but were unfortunately blinded by greed. The infuriating aspect of this is that they received no punishment for misleading people, causing many pension and retirement funds to be wiped out. However these agencies continue as normal, recently downgrading sovereign debt of the US and many Eurozone countries. The ironic thing is that much of this sovereign debt is due to the cost of bailing out banks, which needed to be bailed out due to the large amount of toxic debt on their books which at one point in time was given an AAA rating by these same agencies.

Since writing this blog I have come across the paper by Hickson and Thompson 2006 which believe that bubbles, such as the housing bubble are “investor deceiving frauds”. I hope to revolve my next topic around this idea and investigate if this is true when it comes to the current housing bubbles in the US, and in Ireland. Thank you for reading my blog and I encourage you to voice your opinions regarding any of my posts and get some conversation going.