Recession Turmoil Caused By U.s. Subprime Mortgage Crisis

874 Words Mar 17th, 2015 4 Pages
Wall Street turmoil caused by U.S. Subprime Mortgage Crisis had eventually evolved to global financial crisis. The financial crisis that has engulfed the world is really a disaster, leading to precipitous shrinkage of human wealth and instantaneous evaporation of long-time efforts by financial institutions. But why did such financial crisis take place? Who should be blamed?
As far as I concern, Federal Reserve deserves the greatest blame, as its ultra-loose monetary policy created housing bubble, sowing the seeds of crisis. And its subsequent tighten policy pricked that kind of bubble, precipitatingsubprime mortgage crisis. Together with the former Fed chairman Alan Greenspan indulged rampant financial derivatives,which made the economy worse off.
From 2001, Federal Reserve began to cut interest rates, and after cutting for 13 times, by june.2003, it reduced target rate to 1% which hit the lowest level in the past 46 years. Due to such loose monetary policy, lending rates declined at the same time, 30-year fixed mortgage rates dropped from 8.1%in 2000 to 5.8% in 2003. In this case, Americans’ house purchasing enthusiasm rose dramatically. And speculating on real estate appeared. However bubble would burst eventually. From june.2005, Federal Reserve began to reserve its low interest rate policy, and raised its interest rates for 13 times, so by august.2006, Fed target rate was increased from 1% to 5.25%. The interest rates were put up continuously, which increased borrowing…
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