There is no doubt that the recent financial crisis rocked the nation, and with good reason. Lenders were underwriting loans for anyone and everyone who had an income, never mind the fact that they couldn’t afford their home. When the bubble burst it took the entire market with it, and the entire US economy collapsed. The Financial Crisis Inquiry Commission interviewed many notable figures to find out what really went wrong, and Warren Buffett was one of those figures. Warren was a key figure in these meetings not just because of his lengthy investment career, but also because of his insight when it came to the recession that happened in 2008.
Warren told the committee that he had invested in Goldman Sachs during the financial downturn because he was certain that the US government wouldn’t let such a big firm fail. And with this investment he was right, the US Government ended up bailing Goldman Sachs out with a ten billion dollar loan. Warren talked about how most people purchase a home with the vision that it is going to go up in value. This would seem like a sound investment for most, but before the recession there were predatory lending practices. As well as the fact that many people borrowed against their homes, and this caused a ripple effect.
When the market made its downturn and the home prices begin to slide, many homes were so far upside down that the borrowers would never be able to get out of the hole. Warren Buffett believes that the entire mortgage bubble was sold on a false pretense, and this is what he told the Financial Crisis Inquiry Commission during their interview. With insight like this coming from one of the most respected figures in finance, there is a better understand as to what caused the recession.