The Collapse Of The United States

1015 Words5 Pages
Ask anyone about the 2007-09 recession in the United States, and they will be able to tell you they know what it was. The reason why there was such a Great Recession, the second to biggest following the Great Depression, was because of the market failure in 2006-07 due to the real estate and mortgage sectors. The lost of wealth in the real estate sector led to a cutback in consumer spending. After years of economic recovery, citizens and residents are coming back to the market. But even then, the market is only slowly growing, mainly because of fear of having another market failure. Looking back, there are many lessons we have learned from the collapse that we must apply to the present and future market, and every mistake allows room for benefits.
The main lesson we have learned from the collapse is that it was caused because of subprime mortgages. The technological development in FICO scores, implemented in 1989, allowed people with bad credit scores to take out loans. Lenders use FICO scores to figure out who is a good or bad borrower. Since FICO scores do this, the interest rates that an individual receives is based on actual information and not assumptions, this decreases asymmetric assumption. Because of FICO scores, mortgages were then divided into three different groups of people due to FICO scores. Subprime mortgages were the ones that allowed people with bad credit take out mortgages. However, most of these mortgages had teaser rates. This meant that the first
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