Sub-Prime Mortgage Crisis - What Caused It How Can Us...

Sub-Prime Mortgage Crisis - What Caused It ? How Can US Recover From It? The recent financial crisis in the U.S. that spread to other countries and caused massive turndown in the global economy had its roots in the recent waves of globalisation. Since the developed countries’ production had shifted dramatically towards services, specially to financial services, and this in turn led to financial liberalizations, developed countries experienced massive capital inflows, lending booms, housing and / or stock market bubbles. Financial crises are usually followed by hard and sharp contraction in economic activities, which requires government intervention to bail out banks and restore banking stability. However, government intervention†¦show more content†¦Besides, the AAA ratings of most structured securities also lured foreign investors to the security market, raising the demand for the structured products (E,Benemlelich.J,Dlugosz.2008). The volume of trade in securities increased, which further strengthened a bubble in housing prices by creati ng cheap credit. According to SP/Case-Shiller Home Price Indices, in 2005 the price of the house where gone up about 100 % compare to 2000. At the same time, the rise in the demand for securitized products changed the function of the banks; their key activity became to originate loans, package them, and sell them to investors. As a result, lending standards fell dramatically and banks relaxed regulatory standards, which increased loan approvals. Also, mortgage brokers began providing discounted mortgages, no-documentation mortgages and NINJA (No income, No job, No assets) loans. The background checking became unnecessary because the price of the houses were just increasing, and the originating banks were able to pass the loans to less risk-averse investors (E,Benemlelich. J,Dlugosz.2008). The credit bubble started to create such an environment. This bubble refers to trading an assets above the real value of the assets. So, the underlying assets for those securities were the houses. Each house has two types of value. The first value is the market value which the current value of theShow MoreRelatedThe Financial Crisis Of 2007 Essay1676 Words   |  7 Pagespeople affected. How can a single screw up lead to a mess that not even governments can fix? How can something so severe continue to damage countries financially 5 years after it began? Many people didn’t see it coming. But what’s worse is that the people that did see it coming, contributed to it. Yes. They fueled this mess. And now we can’t get out of it. This is the financial crisis of 2007 . Let’s dig in to where it all began. 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Influence on the UK job market†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦.Page 4-5 4Read MoreAmerica And The Free Market2448 Words   |  10 Pageslooks in depth into the 2008 financial crisis: the course of events that lead to such a disastrous period, classification of too big to fail companies, as well as what the bailouts issued mean to America’s free market. It is my belief that bailouts of corporations which are believed to be too important to the economy directly goes against what the beliefs of a free market are. The Federal Reserve is responsible for monitoring, analyzing, and stabilizing US financial institutions. They are the