This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

The Real Victim of the Great Credit Crunch

NEW YORK ( TheStreet) -- The Federal Reserve's survey on wealth, released earlier in the week, is real evidence that the "Great Credit Crunch" caused pain on Main Street while Wall Street was bailed out.

In my opinion, Federal Reserve policy influenced this great divide.

The Federal Reserve survey on wealth shows that the median net worth of an average American family plunged by $49,100, or 39%, from $126,400 to $77,300 between 2007 and 2010.

This takes the wealth of the average U.S. family to its lowest level since 1992. The "Great Credit Crunch" thus destroyed 18 years of gains in net worth. Leading this dramatic decline was the housing market. There was a 42.3% loss of equity in Americans' homes.

Wall Street and the larger regional banks helped create the euphoria that owning a home was easy and affordable. The greed on Wall Street resulted in the creation of mortgage-back derivative securities, because the sum of the parts, from a basket of mortgages that were sliced and diced, is worth more in trading profits than the whole of the original mortgages.

Community banks were not involved in these mortgages that turned toxic, but they did participate in the bubble by lending way too much money to homebuilders and developers creating a glut in new communities and new homes.

There are thousands of incomplete communities around the country.

As I have shown in previous stories, community banks extended construction and development loans, and other commercial real estate loans in excess of regulatory guidelines.

Instead of monitoring this risk, banking regulators ignored it as the banking system was booming with profits.

Then the housing bubble popped, mortgage securities became toxic and the credit markets froze over. The "Great Credit Crunch" shocked the U.S. Treasury, the Federal Reserve and the Federal Deposit Insurance Corp. Toxic assets were clogging the arteries of the banking system.

The solution, according former Treasury Secretary Hank Paulson, was the $700 billion Troubled Asset Relief Fund, which was supposed to buy the troubled assets from Wall Street and regional banks.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $130.28 0.00%
FB $81.53 0.00%
GOOG $565.06 0.00%
TSLA $218.42 0.00%
YHOO $44.52 0.00%

Markets

DOW 18,080.14 +21.45 0.12%
S&P 500 2,117.69 +4.76 0.23%
NASDAQ 5,092.0850 +36.0220 0.71%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs