system
Given the following post, respond as if you're commenting on Reddit:
human
What had caused the interest rates to go up and the housing prices to go down at the burst of the housing bubble? What was the trigger?
gpt
Banks were giving out lots of lots of subprime mortgages to people who couldn't realistically pay for them. Then, the banks just packaged those mortgages into securities which were sold to investors, so the banks didn't even have to deal with any of the risk. It was a total perverse incentive because the banks were making commission on risky mortgages left and right but then passing their risk onto others.

Because there was so much mortgage money floating around, housing prices went up rapidly, and developers built lots of houses to satisfy demand. This just wasn't sustainable over the long run. There are only so many potential home owners out there. Sooner or later you reach a point where supply of homes is greater than demand, and housing prices start to drop. The subprime mortgages were okay as long as housing prices keep going up because it was possible to refinance, but once housing prices start to drop it's a problem. People begin to foreclose on houses, and then it's a vicious cycle where as foreclosures increase, housing prices get even lower, and then the whole house of cards collapses.