First of all: what does "Loose credit and Easy Money" mean?
Credit is financial word for borrowing. In economics, credit is used to transfer resources and create opportunities. This provides a mutually beneficial opportunity in that those who need money and don't have it, can have it. And those that have money and don't need at (at that specific moment) can lend it, making interest on that money.
To say that credit is "loose", means that it was too easy to borrow money. The consequence of this is that too many people qualified for credit cards, advances, loans etc. And over a decade or two of unqualified borrowing, a mountain of debt can build, which will eventually have to crash on itself. In theory, you're supposed to lend to only those who can repay the debt, which we sometimes fail to accomplish.
Freddie/Fannie and the American Dream
At some point during the last 50 years of American history, we decided that the American Dream meant owning a home. It seemed to become an increasingly important task for our government. We made it a goal to make as many Americans as possible home owners... The result being the birth of the subprime mortgage market. Throughout the 90's the federal government incentivized the housing market to give mortgages to less than ideal candidates. The government promoted programs like HUD and became the biggest player in the industry by sponsoring Freddie Mac and Fannie Mae. They guaranteed the value of subprime mortgages sold by private enterprises. This meant that a bank like TCF could grant a mortgage to a subprime candidate knowing that if the candidate failed to make the the payments, the federal government would bail them out. The result: Mortgages brokers, banks and the rest of the industry were granting subprime mortgages without regard to the risk. And I don't blame them. They knew that if the mortgage fell through, The U.S. GOV would pick up the bill.
Due to this, mortgages became easier and easier to come by. This policy may be the single most important reason for the financial meltdown, but it also had an effect on housing prices, a BIG effect.... they went up and up. Why? When more and more people qualified for mortgages, more and more people can afford houses. And when there are more people can afford houses, then there are more looking for and bidding on houses. When this happens, prices goes up. If you are selling your house and are dealing with 1 potential buyer, you don't have much of an opportunity to increase your price tag. When there are 10 buyers, you can easily increase that price. This caused housing prices prices to rise across the entire market. And they seemed to rise faster and faster each year.
Below is a graph that reflects actual data, despite it being drawn using a free paint app on my iphone. It compares the increase in GDP to the increase in housing prices. GDP is used a standard measure of how our entire economy grows. You notice how housing prices raise exponentially faster than GDP until the collapse, at which point they return to a growth similar to GDP. I say that the exponential growth before the collapse was a simple result of easy credit, or subprime mortgages. And unless we return to those standards, housing prices will never increase like they once did.
