Economic Crisis In USA

Introduction

Many people have offered explanations for the catastrophic US economic crisis of 2008. Most now agree that one of the principal causes was a series of institutional failures in how the financial services industry was governed. Many words have already been written explaining the causes of the 2007-2009 'Great Recession', and many more can be expected in the near future. Although many of these contributions are valuable in tracing out the history of credit default swaps and the policy failures of Alan Greenspan and other government regulators, attempts to place the crisis in the context of the 'long-duree' have been less common. The present paper seeks to understand the main cause of the crisis in relation to long-term economic growth patterns in the USA.

Thesis Statement

Issuance of the large amount of debts is the main cause of US economic crisis.

Overview of the crisis

The first signs of impending crisis is still highlighted in 2006 when it lost significant share in the company of New Century Financial Corporation - America's largest lender. In March 2007, declared bankruptcy, and the authorities have launched criminal investigations. Dozens of other smaller lenders have also declared bankruptcy. Problems also affected insurance companies, but the camel's back shed until the suspension (at the beginning of August.) Payments of funds of one of the largest investment banks in the world. As a result, stock prices fell worldwide. A few days later, the difficulty of liquidity announced the largest US mortgage lender Countrywide Financial Corp, Which intensified the panic (Calomiris, pp. 170-3).

Difficulties in the market is confirmed by data showing the depth of the crisis. Sales of homes in the U.S. in the first five months of 2007 decreased by 21 percent. Median home prices in the second quarter of 2007 declined by 1.5 percent. Property Price Index Case-Shiller shows that the price of 10-meter area in May 2007 decreased by 3.4 percent. What was the biggest decline since September 1991. Houses Market Index, the National Association of Home Builders, measuring optimism in the market - its value is the lowest since February 1991, and the second lowest in the entire 22-year history of the index (Calomiris, pp. 170-3).

Moreover, the United States have highly developed financial markets. Mortgages provided by the institution are not always kept by her, and often comes to marketing them. Banks and other financial institutions can trade freely with each other to the loans on the basis of the commercial bill. It was created in this way, the secondary mortgage market (Cornford, pp. 22-35).

The US government also established financial institutions whose purpose was the promotion of housing, commonly known in the U.S. under potocznymi names: Ginnie Mae, and competing with each other - Fannie Mae and Freddie Mac. They buy up mortgages that meet certain standards. This allows the lender to obtain additional funding earmarked for example, to grant further loans. They assured themselves at the same time each in the form of profit margin than ...