In order to accurately solve the problem of the foreclosure crisis the nation is currently in, one must look at the cause of the issue. To determine the cause, the history of foreclosures has to be looked at. The questions, “How long have foreclosures been around? In the past what was the cause of foreclosures? How was the problem fixed before? What are the similarities between now and then?” all need to be answered.
Foreclosures have been around since the first public banking system was brought into effect in February 1791 (Cowen). The development of the stock market came around on July 4, 1791. The first bank panic was in 1792, when banks had to recall many of the loans they had given, forcing speculators to sell their stock; this caused the first U.S. securities market crash. When people were not able to pay for their homes and businesses banks were forced to foreclose. By foreclosing on a house or business, the bank could resell it, getting the money it should have been receiving, keeping the bank from faulting on a payment owed to the Federal Government.
A similar thing happened throughout the latter part of the 19th century, after the Homestead Act of 1862 was passed. The Homestead Act gave settlers as much as 160 acres of land for living on it for five years, as well as improving it, while paying a nominal fee averaging about thirty dollars, but in some cases as low as ten dollars. Residency was required for ownership on the land. It was later found that 160 acres was not enough in the plains, though it was on the eastern coast (Freligh).
As the farmers had trouble with insects, droughts, and problems with erosion, they had to take high interest loans from the bank, and when they faulted, the farmers left the banks with only one option to foreclose on the farmers. As the railroad moved through the Midwest, as the Chinese constructed the railroads because of the cheap labor they supplied, the railroad companies would buy the farm land, and use it for the construction for where the railroad would be laid. The railroads would buy out other farmers before their farm fell under, but left them jobless and without a shelter (Freligh).
The problems got worse after World War One. U.S. investors had been investing in Germany, making it possible for the Germans to pay the reparations owed for the war. As these investors saw they could make more money investing on Wall Street, they stopped investing in German enterprises. This caused Germany to falter on paying the reparations, making it so France and Great Britain could no longer pay back the loans they had taken from the U.S. before the war started, and through the end of the war (Freligh).
With more stocks being bought from Wall Street, the stock prices dropped and money was lost, so buyers started selling their stock at a rapid rate. At the same time the Second Industrial Revolution had been going on, and consumers were taking out loans from the banks and buying on credit. When the banks were...