The Mortgage Crisi- Cause and Effect

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The 21st Century Mortgage Crisis ENGL106 January 22, 2011 Abstract The 21st century mortgage crisis is certainly a key factor to the current financial catastrophe. There are multiple events that contributed to the downward spiral of the mortgage business. The crisis can be directly linked to the overzealous dreams of home ownership to the manipulation and failure of capitalism. What started out as mortgage bankers’ relaxed and deregulated approach to funding unqualified lenders has turned into an unprecedented mortgage crisis which has greatly impacted the global markets. The 21st Century Mortgage Crisis The mortgage crisis is a shock wave that has traveled through the economic leaving all in its path searching to pick up…show more content…
Bear Stearns, Credit Suisse, Lehman Brothers were making millions securitizing debt and millions from fees (Muolo, 2008). Some of the largest corporations have billions of dollars in mortgage assets on the balances sheet and issuing MBS and other complicated financial instruments to domestic and global investors the market became saturated with risk. In 2007, the housing bubble burst, the main contributor was due to the correction of the Fed Fund interest rates. When interest rates began to increase the home sales decreased, the housing price crashed- meaning that the value of the homes spiral to all time low. The mortgages on millions of homes became worth more that home itself, this cause many homeowners to default of payments and foreclosure roused at an alarming rate. With the massive defaults devastating the markets it undermined Wall Street’s financial instruments and forced some of the countries’ largest corporations into a tail spent of chaos. The mortgage crisis was officially formed like a tornado leaving a path of destruction. Due to the default of payments the MBS and related instruments rippled through the global economy like wild fire. Due to all the toxic assets held by banks and corporation forced a credit freeze and cause the bankruptcy of Fannie Mae and Freddie Mac along with the failure of Lehman Brothers. To “Big to Fail” became a hot topic forcing the government and the Federal Reserve
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