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Mortgage Crisis - Essay Example

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The global financial crisis was preceded by the sub prime mortgage crisis, which marked huge number of defaulters and reflected the impact of the deregulation of the credit market by U.S. government. The national economy collapsed mainly due to the fact that the cost of…
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Mortgage Crisis
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Download file to see previous pages This financial turmoil became such an acute problem in the derivative market that many premier financial firms like Lehman Brothers, Washington Mutual, and AIG eventually surrendered to the situation by incurring huge losses and few among them collapsed. The downfall of such stalwarts of the financial market pressurized the entire economy of the world to go down with them. If we analyze the issue we would find that it is the de-regulation of the US government, which ultimately resulted in the Subprime crisis. De-regulation of the US credit system is the main cause behind the mortgage crisis and the only way of restoring the normal situation is by tightening the degree regulation in the credit market.
With loosening of the credit market regulations, those creditors eagerly gave loans to the set of people who did not fall in the set of potential borrowers before and credibility assessment was loosened. The crisis affected the inter-bank lending, ultimately slowing down the entire credit process of the nation. Most of the assets on which financial market worked at that time were not real as at that point of time there were an increasing number of home buyers in United States who defaulted during their loan payments. Many Americans were forced to leave their home, though the issue was not solved at that point (Gale, 2005). As mentioned above, their (home-owners’) failure to meet the debt created havoc within the American as well the Global Economy (“Mortgage crisis robbing seniors of golden years”, 2009). In the first three months of the year 2007, only 0.58 percent of the default mortgages were in foreclosure (Gale, 2005). This percentage was higher in the case of the sub-prime buyers where about 2.43 percent of the mortgage properties were evacuated. This could lead to further rise in banks’ losses (Wei and Grant, 2009). The financial institutes, the government, as well as the public were stressed out (Katz, ...Download file to see next pagesRead More
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