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Report on Subprime Crisis of 2007-2008 in US

   

Added on  2020-05-28

11 Pages2751 Words101 Views
FinanceEconomics
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Running head: SUB PRIME CRISIS Subprime Crisis 2007-2008Name of the Student:Name of the University:Author note:
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1SUBPRIME CRISIS Executive Summary The purpose of this report is to discuss the subprime crisis that happened in 2007-2008 in the US and affected the economy of the country. The financial loan and credit schemes of the financial institutions affected the purchasing behavior of the consumers. The over greed of the investors affected the market volatility making it vulnerable to unsystematic risks identified in the mortgage crisis. The rapid increase in the real estate property valuation and unsustainable indicators income of the US citizen also one of the reason that led to this crisis. The prime lenders in US are the most important contributors in this crisis by faulting on the large amount ofloans at that time.
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2SUBPRIME CRISIS Table of ContentsIntroduction......................................................................................................................................21.Reasons that led to crisis..........................................................................................................22.Beginning of the collapse.........................................................................................................33.The mechanisms of the failure.................................................................................................44.Impact of the crisis in US economy and in the of the world Middle East, China, Europe......45.The financial plans to rescue....................................................................................................66.The beginning of the recovery..................................................................................................67.My opinion...............................................................................................................................7
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3SUBPRIME CRISIS Introduction The financial crisis happened in year 2007 and the previous scenario of this situation waslucrative for the financial institutions. The Financial institutions developed a mortgage loan scheme thatwas very lucrative for the people in USA as well as the lenders near 2001. After the scheme wasannounced, without calculating the credit risk the companies started to lend money using the scheme. TheCredit crunching in the banking sector was the main reason for the economic downtown in the year 2007.The “Housing bubble” was also the main reason for the companies to enter into the unstable valuation ofthe real estate market (Dzikowska & Jankowska, 2012). The rapid increase in the real estate propertyvaluation and unsustainable indicators income of the US citizen also one of the reason that led to thiscrisis.DiscussionReasons that led to crisis - The mortgage debts increased beyond compare. The debt increased beyondthe property valuation. The low interest rates of the US economy were also a reason that led to the highervaluation of the properties. The main criteria for the company were to check the relation between thelong-term lower interest rates, which was the reason for higher valuation of the company. The imperfectdata regarding the inflation rate and interest rates also came out to be costly in the matter. The Federalreserve board increased the interest rates from 1% to 5.25 % during 2006 but it was too late and they didnot increased it further out of fear of downturn of the real estate market and housing property valuation(Masera, 2011). The subprime borrowers’ played a role in this by increasing the loan amount and leisure
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