How Is The 2007 Subprime Mortgage Crisis Different From Other Countries?

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How is the U.S 2007 subprime mortgage financial crisis different from other countries? Carmen and Reinhart paper answers this question in light of historic crisis in Big Five developed countries and compares it with U.S 2007 crisis. In the second paper Kenneth Dam does an international comparison of the weaknesses in the financial regulation which led to the subprime mortgage crisis. The subprime mortgage was invented to give loans to less credit worthy people with higher interest rates. The lower credit quality ultimately led to massive defaults which decreased the housing prices. The subprime mortgage crisis rapidly turned into a worldwide financial crisis because so many financial institution 's in different countries invested in…show more content…
One thing that seems to deviate from the general trends is that U.S stock prices did not decrease like all the other nations before the crisis. Carmen and Dam refer to this phenomenon as Greenspan put, because the chairman of the Federal Reserve Greenspan was notorious for constantly pumping money into the economy and keeping interest rates artificially low. Also U.S deficits are much higher compared to other developed countries before the crisis. U.S fiscal policy seems to be rolling over its debt in perpetuity and does not borrow with the intention of paying it all back. Whether this fiscal policy is sustainable remains to be seen. Furthermore the decline in GDP growth seems to be much more severe and longer in the Big Five countries compare to U.S. This again could be due to the active monetary policy of Federal Reserve in U.S and the constant stimulation. Another notable thing is that public debt escalates after a crisis in all the countries. This could be due to increase federal government spending after the crisis for bailing out companies and etc. Above are the indications that lead to crisis but what are the major causes of the crisis? Dam’s paper answers this question by first explaining the
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