The Cause And Effects Of The Subprime Crisis

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1 Introduction

The subprime crisis that occurred during 2007 to 2009 is the first big crisis after the Great Depression in 1930s. This crisis had traumatised the World’s financial. U.S. Federal Reserve Board is the main cause of the crisis during the period of easy money and financial deregulation from mid 1990s till today. The unprecedented housing and consumer credit bubbles in the U.S. and other countries which share American’s policy orientation was due to over consumption and over borrowing. Till to date, the ripple effect of subprime crisis still linger in the financial market.
During U.S. subprime mortgage crisis, government-sponsored agencies such as Freddie Mac dominated the mortgage bond market. These agencies do subprime lending to subprime borrowers who have poor credit score due to having the inability to maintain the repayment schedule, excessive debt or no assets to act as security.
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This resulted in a budget deficit of $8.7 billion or 3.5% of its GDP, which Singapore is able to afford due to past surplus and huge reserves. The aim of the Resilience Package is to promote saving jobs, enhancing competitiveness of firms and workers, income relief for the lower classes, and strengthening physical and social infrastructure. Within this package, there are 2 key element is Jobs Credit Scheme and the Special Risk-Sharing Initiative. Their aim is to provide a fiscal impulse of about 3% of GDP in 2009-10. This fiscal policy had begun in FY 2008.
Jobs Credit Scheme of $5.1 billion, help preserve jobs for Singapore Citizens and Permanent Resident. It provides businesses cash grant by giving them 12% of the wages of employees who were still employed by the firm at the end of 3 month period. This scheme is to maintain or increase their workforce and also help lower labour cost by 7 to 9 percent (International Monetary Fund
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