The Global Finance Crisis And Its Affects

The mortgage crisis of 2007 marked catastrophe for millions of homeowners who suffered from foreclosure and short sales. Most of the problems involving the foreclosing of families’ homes could boil down to risky borrowing and lending. Lenders were pushed to ensure families would be eligible for a loan, when in previous years the same families would have been deemed too high-risk to obtain any kind of loan. With the increase in high-risk families obtaining loans, there was a huge increase in home buyers and subsequently a rapid increase in home prices. As a result, prices peaked and then began falling just as fast as they rose. Soon after families began to default on their mortgages forcing them either into foreclosure or short sales. Who was to blame for the risky lending and borrowing that caused the mortgage meltdown? Many might blame the company Fannie Mae and Freddie Mac, but in reality the entire system of buying and selling and free market failed home owners and the housing economy.

During the early 2000 's, the United States housing market experienced growth at an unprecedented rate, leading to historical highs in home ownership. This surge in home buying was the result of multiple illusory financial circumstances which reduced the apparent risk of both lending and receiving loans. However, in 2007, when the upward trend in home values could no longer continue and began to reverse itself, homeowners found themselves owing more than the value of their properties, a trend which lent itself to increased defaults and foreclosures, further reducing the value of homes in a vicious, self-perpetuating cycle. The 2008 crash of the near-$7-billion housing industry dragged down the entire U.S. economy, and by extension, the global economy, with it, therefore having a large part in triggering the global recession of 2008-2012.

The housing crisis of the late 2000s rocked the economy and changed the landscape of the real estate business for years to come. Decades of people purchasing houses unfordable houses and properties with lenient loans policies led to a collective housing bubble. When the banking system faltered and the economy wilted, interest rates were raised, mortgages increased, and people lost their jobs amidst the chaos. This all culminated in tens of thousands of American losing their houses to foreclosures and short sales, as they could no longer afford the mortgage payments on their homes. The United States entered a recession and homeownership no longer appeared to be a feasible goal as many questioned whether the country could continue to support a middle-class. Former home owners became renters and in some cases homeless as the American Dream was delayed with no foreseeable return. While the future of the economy looked bleak, conditions gradually improved. American citizens regained their jobs, the United States government bailed out the banking industry, and regulations were put in place to deter such events as the mortgage crash from ever taking place again. The path to homeowner ship has been forever altered, as loans in general are now more difficult to acquire and can be accompanied by a substantial down payment.

One of the factors that led to the mortgage crisis was the housing bubble. It started in 2001 and climaxed in 2005. A housing bubble is characterized by rapid increase in the value of real estate properties to an extent that

The real cause of the crisis was not in the housing market but in the misguided monetary policy of the Federal Reserve. While the economy started to downsize in 2008, the Federal Reserve concentrated on solving the housing crisis yet it was just a distraction from the entire thing. By its self, it might have caused a small downfall. As the Federal agency released the financial institutions at a risk from a number of bad mortgages, it disregarded the main cause of a serious crisis (FEDERAL RESERVE BANK of NEW YORK, 2017) A decrease in the Gross Domestic Product (GDP) which entails the total value of all commodities and services produced in the United States, was not adjusted for inflation. Such a decline began the unplanned crisis in mid-2008, and once it happened, the damage had already

Problems for home owners with good credit surfaced in mid-2007, causing the U.S.'s largest mortgage lender, Countrywide Financial, to warn that a recovery in the housing sector was not expected to occur at least until 2009 because home prices were falling "almost like never before, with the exception of the Great Depression." Most economists agree that the primary cause of the current recession was the credit crisis arising from the bursting of the housing bubble. Why did the housing bubble occur and why did its bursting cause such a severe and widespread recession?

The housing bubble went into full effect by December of 2007, and is seen to be the leading cause of the Great Recession. With the lowering of interest by mortgage associations, lead to those who had poor credit to obtain a mortgage. Those

After peaking in the United States in 2006, the global housing bubble collapse. On the national level, home prices in the United States have dropped by almost 40% according to the Case-Schiller home price Index from 2006 peak to mid 2009. Securities with risk exposure to housing market plummeted, causing great damage to financial institutions across the globe. Stock markets all over the world suffered large drops in 2008 and early 2009 as questions arose regarding the solvency of major financial institutions and liquidity in the

In 2008 the United States experienced the worst financial crisis since the Great Depression in the 1930s, primarily because of the bursting of the U.S. housing bubble and increasing default rates on subprime mortgages which caused the price of house to increase once a high amount of loans were given out by banks to potential homeowners. Securitization played a big role in this because of how risky the regulations are and the giant corporate companies that are truly fluctuating and controlling the market. At the peak of the financial crisis new specialized mortgage lenders and securitizers came along unrestricted by government regulations which resulted in an extreme number of foreclosures and the stock market to plummet.

The housing market crash, which broke out in the United States in 2007, was caused by high risk subprime mortgages. The subprime mortgage crisis resulted in a sudden reduction in money and credit availability from banks and other lending institutions, which was referred to as a “credit crunch.” The “credit crunch” and its effect spread across the United States and further on to other countries across the world. The “credit crunch” caused a collapse in the housing markets, stock markets and major financial institutions across the globe.

The initial cause of the financial turbulence is attributed to the U.S. sub-prime residential mortgage market. The sustained rise in asset prices, particularly house prices, on the back of excessively accommodative monetary policy and lax lending standards during 2002-2006, increased innovation in the new financial instruments, unusual low interest rates resulted in a large rise in mortgage credit to households; particularly low credit quality households, the greed of investors’ for ever higher returns coupled with very minimal down payments, along with the dependence on major global rating agencies, allowed complex investments products to be sold to an

They argue that the present-day financial collapse is a logical consequence of the contradictions of monopoly finance capital - contradictions that are reflected in the like processes of financialization and stagnation that have dominated the development of the U. S. economy in the recent decades. These political scientists present convincing evidence that the financial crisis of ‘08, with analytical predictions of 2009 and the years that follow, is one of the great catastrophes of modern neoliberal capitalism.

Financial and economic experts still disagree over the specifics of what caused the recession of 2008. The fraudulent activities which resulted from the subprime mortgage crisis were simply the combination of the perfect economic storm of opportunity meeting the ability for mortgage bankers, corrupt politicians, Wall Street investors, and anyone else feeding from the real estate trough to recognize and capitalize on the presented opportunity. Between the winter of 2007 and the summer of 2009, there was a national banking crisis which fed directly into the United States recession and was initiated by a significant disintegration in housing prices directly after the housing bubble collapsed. The collapse of the bubble led to a decrease in investment interests in residential property and to a higher mortgage rate delinquencies, loan defaults, and foreclosures across the country.

Housing prices in the United States rose steadily after the World War II. Although some research indicated that the financial crisis started in the US housing market, the main cause of the financial crisis between 2007 and 2009 was actually the combination of housing bubble and credit boom. The banks created so much loan that pushed the housing price to the peak. As the bank lend out a huge amount of money, the level of individual debt also rose along with the housing price. Since the debt rose faster than people’s income, people were unable to repay their loan and bank found themselves were in danger. As this showed a signal for people, people withdrew money from the banks they considered as “safe” before, and increased the “haircuts” on repos and difficulties experienced by commercial paper issuers. This caused the short term funding market in the shadow banking system appeared a

The economic recession felt in the United States since the collapse of the housing market in 2007 can be seen by various trends in the housing market. This collapse claimed some of the largest financial institutions in the U.S. such as Bear Sterns and Lehman Brothers, as they held over-leveraged positions in the mortgage backed securities market. Credit became widely available to unqualified borrowers during the nineties and the early part of the next decade which caused bankers to act predatorily in their lending practices, as they could easily sell and package subprime mortgage loans on leverage. This act caused a bubble that would later