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Main causes of the 2008 US housing crisis
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The United States fell into a deep finanical recession. One of the main causes was the housing bubble. This eventually lead to the housing crisis. When this happened it showed a rapid decline in home prices. How this housing bubble came to happen is the government not oversighting the key areas that included, consumer protection, private label mortgage securitization, bank capitlization, and finanical markets. The ones who were more likely to be targeted were consumers who already had mortages and had built up equity in their homes. Financial institutions were hit even harder, with many on the verge of bankruptcy, or failing because of the underwater mortgages. Leading to the bursting of the housing bubble were three major contributors. A cultural …show more content…
The savings rate by the 1960s was seven to eight percent. Back then people would save to purchase things they eventually wanted to get such as cars and household goods. During this time period, homeownership typically required a 20 percent down payment. Lending practices were one of the most significant contributors to the housing bubble and subsequent crisis. Banks and other lending institutions were very particular about the creditworthiness of the individuals to whom they would lend money. With a push from the federal government to get more people into homes of their own, banks began lending to people with lower credit scores, also known as subprime borrowers. Subprime mortgages carry a higher interest rate than prime rate mortgages, meaning a larger profit for the institution. The adjustable-rate mortgage, or ARM, was one way banks found they could lend back to borrowers with lower credit scores. These mortgages usually begin with a low interest rate that adjusts.. Although lending institutions were taking on risky, subprime mortgages, they didn’t look so risky at the time of the housing bubble. In the period between 1997 and 2006, home prices rose by over 132 percent. During this period, mortgage lenders were not at all concerned about default. . Banks were willing to issues loans they knew could not be paid off because they could sell these loans in the secondary market. Subprime mortgages were seen as
Just as the great depression, a booming economy had been experienced before the global financial crisis. The economy was growing at a faster rtae bwteen 2001 and 2007 than in any other period in the last 30 years (wade 2008 p23). An vast amount of subprime mortgages were the backbone to the financial collapse, among several other underlying issues. As with the great depression, there would be a number of factors that caused such a devastating economic
Likewise, Andra C. Grant says, “Between 1929 and 1932, home prices in New York fell an average of 50% and the unemployment rate rose substantially. As a result, many residential mortgages were at serious risk of foreclosure. Lenders in the 1930s faced substantial incentives to avoid foreclosure” (Grant). Most Americans couldn’t afford to buy a home prior to this downfall. The down payment was 80% upfront, and people only had five to seven years to pay the remaining amount (“How Did the FHA Help End the Great Depression?”). However, in 1934 a reform called the Federal Housing Administration uprooted. (“How Did the FHA Help End the Great Depression?”). It helped recreate the failing housing market. It is known for lowering down payments, creating a longer loan period, and introducing the idea of paying interest over time and loan standards (“How Did the FHA Help End the Great Depression?”). Through solving the housing problems, the Federal Housing Administration helped get America back on its
In the essay “The Mansion: A Subprime Parable,” Michael Lewis unfolds the real face of the American dream. He talks about his own personal experience in his look out for a house and his struggle with the house he rented. Most Americans have bought houses they cannot afford. Banks offered loans, they have lent mortgages that many don't have enough financial resources to pay them back. Agents have falsely guaranteed that real estate prices will be in constant rise, they promised them that there will be no declination in prices.
“The housing market will get worse before it gets better” –James Wilson. The collapse of the United States housing market in in 2008 was one of the most devastating moments for the world economy. The United Sates being arguably the most important and powerful nation in the world really brought everyone down with this event. Canada was very lucky, thanks to good planning and proper preventatives to avoid what happened to the United States. There were many precursor events that occurred that showed a distinct path that led to the collapse of the housing market. People were buying house way out of their range because of low interest rates, the banks seemingly easily giving out massive loans and banks betting against the housing market. There were
Life is like a bubble; It is pretty unbelieve-bubble. Everyone will stick with a thought, and that thought bubble will keeping floating and existing until it bursts. It is natural that everyone is adapting to how society sees as fit, but is the norm of the society really the best bubble? In the novel, To Kill a Mockingbird, By Harper Lee, the author give this message to the readers that racism is not something that everyone is born with, but rather is something that is taught. Although yes, the modern world no longer sees racism as the norm, it was much bigger way back in the 1930s. Racism was the bubble that stuck with everyone in the town of Maycomb, and took quite a while for them to open their eyes, a bit, about the topic.
What caused the Great Recession that lasted from December 2007 to June 2009 in the United States? The United States a country with abundance of resources from jobs, education, money and power went from one day of economic balance to the next suffering major dimensions crisis. According to the Economic Policy Institute, it all began in 2007 from the credit crisis, which resulted in an 8 trillion dollar housing bubble (n.d.). This said by Economist analysts to attributed to the collapse in the United States. Even today, strong debates continue over major issues caused by the Great Recession in part over the accommodative federal monetary and fiscal policy (Economic Policy Institute, 2013). The Great Recession of 2007 – 2009 enlarges the longest financial crisis since the Great Depression of 1929 – 1932 that damaged the economy.
Have you ever noticed that while you’re driving around Austin that the homeless have become a common casualty to exhibit. I know the first thing that comes to mind is, “How ridiculous, why don’t they just get a job!”It perfectly acceptable to wonder, whether your money would go towards feeding a starving stomach or a drug addiction, therefore your generosity would be put to better use through a charity foundation or simply by offering a meal. The reality is that the majority of people who are homeless are unable to work due to certain disabilities. In other words, the best response is compassion. There is only so far we can do as a community, the major change has to come from a superior source, which is why I propose that the City of Austin ought to step up and diminish this problem. The City of Austin should build more affordable housing and assistance programs because it will help reduce homelessness.
The recession officially began when the 8 trillion dollar housing bubble burst. (State of Working America, 2012) Prior to that, institutions bundled mortgage debt into derivatives that were sold to financial investors. Derivatives were initially intended to manage risk and to protect against the downside, but the investors used them to take on more risk to maximize their profits and returns. (Zucchi, 2010). The investors bought insurance against losses that might arise from securities so that they could secure their money. Mortgage defaults unexpectedly skyrocketed, which caused securitization and the insurance structure to collapse. (McConnell, Brue, Flynn, 2012). The moral hazard problem arose. The large firm investors thought they were too big for the government to allow them to fail. They had the incentive to make even more risky investment.
During this era, mortgage companies granted loans to almost anyone. They never took the time to look at FICO scores or credit ratings (Sebastian, 2008). They completely ignored poor credit histories of consumers. Marginal borrowers should never have been the recipients of high-risk sub-prime loans, anyway. This is an extremely important point, which often does not receive a lot of fair importance (Sebastian, 2008). Borrowers who did not qualify for a prime mortgage should never have been offered a sub-prime mortgage, which they eventually had trouble making payments when the interest rates went sky-high during an unstable market environment (Sebastian, 2008). The majority of the sub-prime mortgages were issued by independent mortgage lenders who are not regulated by the federal government. In essence, they were able to operate and do whatever they wanted to do without the watchful eye of any monetary or regulatory agency. Also, real estate appraisers did not check the credit rating of borrowers, either. Unfortunately, these three circumstances dictated the collapse of the financial markets and the genesis of credit crunch in the United States and soon followed internationally (Sebastian,
The "subprime crises" was one of the most significant financial events since the Great Depression and definitely left a mark upon the country as we remain upon a steady path towards recovering fully. The financial crisis of 2008, became a defining moment within the infrastructure of the US financial system and its need for restructuring. One of the main moments that alerted the global economy of our declining state was the bankruptcy of Lehman Brothers on Sunday, September 14, 2008 and after this the economy began spreading as companies and individuals were struggling to find a way around this crisis. (Murphy, 2008) The US banking sector was first hit with a crisis amongst liquidity and declining world stock markets as well. The subprime mortgage crisis was characterized by a decrease within the housing market due to excessive individuals and corporate debt along with risky lending and borrowing practices. Over time, the market apparently began displaying more weaknesses as the global financial system was being affected. With this being said, this brings into question about who is actually to assume blame for this financial fiasco. It is extremely hard to just assign blame to one individual party as there were many different factors at work here. This paper will analyze how the stakeholders created a financial disaster and did nothing to prevent it as the credit rating agencies created an amount of turmoil due to their unethical decisions and costly mistakes.
The subprime mortgage crisis is an ongoing event that is affecting buyers who purchased homes in the early 2000s. The term subprime mortgage refers to the many home loans taken out during a housing bubble occurring on the US coast, from 2000-2005. Home loans were given at a subprime rate, and have now led to extensive foreclosures on home loans, and people having to leave their homes because they can not afford the payments. The cause and effect of this crisis can be broken down into five major reasons. When subprime mortgages began to flourish, the term housing bubble came into existence.
After the Second World War, Japan experienced an amazing and thriving economy. The United States’ Marshall Plan helped rebuild the Japanese economy and “created an opportunity for Japan to export manufactured products to the increasingly affluent United States” (Colombo). Japan, which was at the time comprised of “zaibatsu,” or financial conglomerates, began competing globally by mastering Western goods, and “selling them back to the West for cheaper prices” (Colombo). By the 1970s and 1980s, Japan had become the global leader in revolutionary electronics, which created an international trend “similar to the Apple iPod and iPhone craze of recent years” (Colombo). During this post World War Two period, “Japan experienced attractive economic growth to place itself as an economic powerhouse” (Tolia). Eventually, this economic miracle would come to an end and create a miserably failing economy for the Japanese. What had happened was that the seemingly perfect economy had secretly been “bubble-forming.” At the end of the flourishing period, the bubble collapsed and caused an economic catastrophe in the housing market, stock market, and financial market in general. In this essay, I will analyze some major causes of the bubble’s formation, and its demise. I will also analyze the Japanese government’s attempt to recover from the catastrophe. Overall, The Plaza Accord, Japan’s economic law, and its corporate structure led to the formation of the bubble, while the government’s attempt of financial deregulation halted the nation from recovery after the bubble’s collapse.
The Great Depression was the deepest and longest-lasting economic downfall in the history of the United Sates. No event has yet to rival The Great Depression to the present day today although we have had recessions in the past, and some economic panics, fears. Thankfully the United States of America has had its shares of experiences from the foundation of this country and throughout its growth many economic crises have occurred. In the United States, the Great Depression began soon after the stock market crash of October 1929, which sent Wall Street into a panic and wiped out millions of investors ("The Great Depression."). In turn from this single tragic event, numerous amounts of chain reactions occurred.
Affordable housing in the United States describes sheltering units with well-adjusted housing costs for those living on an average, median income. The phrase usually implies to applied rental or purchaser housing within the financial means of lower-income ranges specific to the demographics of any given area. However, affordable housing does not include those living in social housing owned by government and non-profit organizations. More specifically, the targeted range for housing affordability sets below 30 percent of a household's annual income, including all applicable taxes, utility costs and home owners insurance rates. If the mean income per household breaches the 30 percent mark, then the agreed status becomes labeled as "unaffordable" by most recognizable financial institutions.
Real estate market is one of important parts of national economy. First of all, the real estate market has three great pushing effects on economic growth. The first effect is the direct output of housing construction project; the second is the indirect output from housing construction project, such as the consumption of building materials, the using of transportation and other industries; the third one is related real estate services, mainly concentrated in house selling and buying services, house rental and leasing services, financial services (mortgage services) and house management services.