Causes of the Financial Crisis of 2008-2009
Causes of The Financial Crisis of 2007-2009
According to our financial textbook “ Financial crises are major disruptions in financial markets characterized by sharp declines in asset prices and firm failures” (Mishkin and Eakins 2012). In August 2007, defaults in mortgage market for subprime borrowers sent a shudder through the financial markets, leading to the worst U.S financial crisis since the Great Depression. Alan Greenspan, chairman of the Fed, described the financial crisis as a “once-in-a-century credit tsunami”. (Mishkin and Eakins 2012). Furthermore, Wall Street firms and commercial banks suffered losses mounting to billions of dollars. Households and businesses found they had to pay higher interest rates on their borrowings, and harder to obtain credit. World Stock markets, investment firms and banks went bell up. A recession began by December 2007. (Mishkin and Eakins 2012).
The 2007-2009 Financial Crisis was caused by multiple interrelated causes including: subprime mortgages, unregulated mortgage originators, originate to distribute model which led to the securitization of loans, mortgage backed securities purchased by investors, and flawed credit ratings in behalf of credit rating agencies.
The financial crisis was initiated by a bust and boom of mortgages due to low interest rates.. According to (New York Times 2011) The roots of the credit crisis stretched to another notable boom and bust: the tech bubble of the late 1990s. When the stock market declined in 2000, the Federal Reserve sharply lowered interest rates to limit economic damage. As a result, lower interest rates make mortgage payments cheaper and demand for homes began to rise, sending prices up. In addition millions of homeowners took advantage of the rate drop to refinance their existing mortgages. These created the quality of mortgages to go down. (New York Times 2011); With its easy money policies, the Federal Reserve allowed housing prices to raise to unsustainable levels
According to our financial textbook “ Financial crises are major disruptions in financial markets characterized by sharp declines in asset prices and firm failures” (Mishkin and Eakins 2012). In August 2007, defaults in mortgage market for subprime borrowers sent a shudder through the financial markets, leading to the worst U.S financial crisis since the Great Depression. Alan Greenspan, chairman of the Fed, described the financial crisis as a “once-in-a-century credit tsunami”. (Mishkin and Eakins 2012). Furthermore, Wall Street firms and commercial banks suffered losses mounting to billions of dollars. Households and businesses found they had to pay higher interest rates on their borrowings, and harder to obtain credit. World Stock markets, investment firms and banks went bell up. A recession began by December 2007. (Mishkin and Eakins 2012).
The 2007-2009 Financial Crisis was caused by multiple interrelated causes including: subprime mortgages, unregulated mortgage originators, originate to distribute model which led to the securitization of loans, mortgage backed securities purchased by investors, and flawed credit ratings in behalf of credit rating agencies.
The financial crisis was initiated by a bust and boom of mortgages due to low interest rates.. According to (New York Times 2011) The roots of the credit crisis stretched to another notable boom and bust: the tech bubble of the late 1990s. When the stock market declined in 2000, the Federal Reserve sharply lowered interest rates to limit economic damage. As a result, lower interest rates make mortgage payments cheaper and demand for homes began to rise, sending prices up. In addition millions of homeowners took advantage of the rate drop to refinance their existing mortgages. These created the quality of mortgages to go down. (New York Times 2011); With its easy money policies, the Federal Reserve allowed housing prices to raise to unsustainable levels