The American Nation A History of the United States, Combined Volume (14th Edition)

Alarming financial news pushed the campaign out of
the headlines.

The Historical Significance of the 2008
Presidential Electionatwww.myhistorylab.com

Financial Meltdown

The fault lines of the 2008–2009 crisis extended to
the 1990s. At that time the economy appeared to
have recovered from the recession that began in

1973. But while the stock market soared, wages
      lagged far behind. Consumers, reasoning that the
      Cold War was over and the economy healthy, went
      on a spending spree. Within a decade their savings
      were gone. By 2005, for the first time since the
      Great Depression, the American people spent more
      than they earned. Mostly they bought houses. But
      how, without savings, could they afford down pay-
      ments? Politicians, bankers, and financial “wizards”
      had devised several solutions. In 2002 President
      George W. Bush declared that the government
      should “encourage folks to own their own home.”

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Homeowners, he believed, were more responsible

citizens than renters. Democrats, too, regarded

home ownership as a crucial step out of poverty.

Leaders in both parties advocated easier lending

requirements and prodded the huge federally owned

mortgage companies to issue more mortgages.

Private mortgage companies followed suit. They rea-

soned that as house prices increased, the ability of

homeowners to repay loans mattered less: A repos-

sessed house could be sold for more than the original

mortgage loan.

Granted easier credit, millions of Americans for

the first time bought homes. In 1994, 64 percent of

U.S. families owned homes; by 2004, the percentage

had increased to 69 percent, the highest ever.

Housing prices soared. Many homeowners bought

bigger ones—“McMansions,” in the slang of the day.

By 2008, one in every five new houses had three or

more garages.

Soon banks and mortgage companies had

exhausted their capital. Large international investment

banks such as Goldman Sachs, Lehman Brothers, and

Financial Meltdown 869

Republican candidates John McCain and Sarah Palin campaign at Franklin & Marshall University in 2008.