The United States Housing Crisis Essay

704 Words Feb 23rd, 2016 3 Pages
In 2007, the ongoing once-in-a-century financial crisis has seriously impacted the development of the United States, causing the subsequent Great Recession. What was the major factor that causes this recession? The financial crisis, triggered by American subprime mortgage crisis in August 2007, has gradually turned into a great recession. The central area of crisis is unquestionably Wall Street. Investment banks in Wall Street collapsed along with the recession Therefore, the subprime mortgage crisis, also known as “mortgage meltdown” is the immediate cause of the recession.

1)All of the severe crisis in 2007 began with long-term accumulation of deficit spending. In order to recover and stimulate the economy from the Great Depression of 1930, , supporting people with financial aid to purchase houses. The United States housing system created another private mortgage enterprise Freddie Mac in 1970, which was similar to Fannie Mae. The two mortgage associations enjoyed the privilege of government guarantee. They converted mortgage into bonds through asset securitization on market for sale, which attracted investment banks and other financial institutions for purchase. A question raised as why banks sold their mortgages to those people with low credit and high risk of default, but the real question is what should they do without loaning money to these people. If other banks did that but a “moral” bank did not, the “moral” bank might lose chance of gaining profits and eventually…

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