Recently, I watched a movie, Too big to Fail. It depicts the events happened in Wall Street during 2008 US financial crisis. There is a scene in the movie that explained the reasons behind the crisis, which attracts my interest. Then I found and watched another short video, “Credit Crisis”. It takes only 11 minutes to visually illustrate the reasons behind the credit crisis in the United States. After watching it, I have gotten the answers of these questions. What is credit crisis? How did it happen? And who is affected?
This credit crisis is also called the subprime crisis. The reason of the subprime crisis can generally be described as follows.
In 2001, Federal Reserve lowered the interest rate to keep the economy strong, which not
…show more content…
Then more and more mortgages turned into worthless houses. Massive selling prices fall, which made the property bubble burst in the short term. When the loan repayments were found to be far more than the houses’ current prices, more and more house owners were unable or unwilling to continue to repay the loan. At this point, deeply involving banks and investment firms not only suffered big lose of bad debts, but also had to bear the other huge cost from the sharp depreciation of the mortgage products. They couldn’t repay their owner loans. So a lot of financial institutions started to declare bankruptcy. The issue of the property market had finally evolved into national financial problems. Sub-prime crisis broke out consequently. In the crisis, not only the house owners, the lender, the banks and Wall Street, the entities directly related to mortgages suffered lost, everyone was affected by the recession.
As we have seen the subsequence, the credit crisis not only impacts the US economy, but also spreads to global financial market. It brought a lot of thinking to the world. I think we need to rethink the role of US in the international financial system. In the previous crisis, US invariably played the role of firefighters. But this time the crisis occurred in the US. Its financial system is not so perfect as imagined. And because of its dominant position in the international financial system, if a problem occurred here, the negative effects