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Housing Crisis in the USA - Essay Example

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This paper "Housing Crisis in the USA" focuses on the main problem that gave way to the crisis that was the fact that banks were deregulated. The continued deregulation led to the creation of the environment where banks acted in a careless manner, regardless of the risks talked about. …
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Housing Crisis in the USA
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Housing Crisis in the USA

Download file to see previous pages... Alan Greenspan, as the leader of the Federal Bank definitely had a stake in this and in fact, he and his team seemed to have too much faith in the theory of an efficient market that is able to regulate itself (Shiller 89). Yet, these ideas of a perfect market where competition in the context of demand and supply is supposed to create market equilibrium are fundamentally flawed. In such cases where deregulation occurs, it is always likely that there will be a time when the market will collapse under its own pressure.
The increasing income inequality is a major factor that led to the housing crisis. Increasing poverty in America meant that many households are not able to have the proper income to own a house and this led to the creation of a huge market niche that the banks could not ignore. These people who make the greater majority of the pupation in the United States had to achieve the American dream of owning a house, yet they did not have the means because they could not access the normal mortgages. When banks, through the freedom afforded them by deregulation, discovered this niche, they started giving subprime mortgages. The subprime mortgages were a high-risk venture and as would be expected, they ended up having a negative impact on the economy because many of these subprime customers ended up defaulting on their mortgage repayments.
In this case of the housing crisis and the adverse situations that followed, everyone is to blame in a different kind of way. The banks were to blame for being careless and also for misleading people to believe that these products (subprime mortgages) were good for them. People seem to trust banks very much and always believe that anything these banks offer is without any hidden agenda. When banks offered the subprime mortgages, it was easy for these people to believe that it was safe to engage in the investments. The individuals are also to blame because their greed overshadowed their rationality.  ...Download file to see next pagesRead More
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