The US Economy

Introduction

The 2008 financial crisis erupted directly due to the collapse of the housing bubble in the United States in 2006, which caused around October 2007 due to the so-called subprime mortgage crisis. The impact of the mortgage crisis began to manifest itself in an extremely serious since early 2008, infecting U.S. financial system first, and then to the international, having resulted in a deep liquidity crisis. The predecessor of the 2008 financial crisis has served the mortgage crisis in the U.S., the first signs of which appeared in 2006 in the form of reduction in the number of home sales, and by the spring of 2007 turned into the crisis of high-risk mortgages (subprime lending). In the summer of 2007, the mortgage crisis began to develop into a financial system and affect not only the United States but other countries as well (Michael, pp. 157).

The crisis began in summer 2007 because of "subprime" mortgages made to the American middle class. Normally, an individual who wishes to acquire an apartment can borrow based on salary and ability to repay. Drawback of the system: the loan is proportional to salary. If you do not gain much, you cannot borrow a lot, so you cannot buy. The Americans have created the subprime: you take what you want (even if the salary is not very high) but it is the house that is guaranteed (Brearley, pp. 360). Clearly, if you cannot repay, the bank gets the house and sells it. But when property prices are falling, banks are panicking! Classic scenario: a borrower defaults further, the bank decides to sell his house and get everything back. But as property prices have fallen, the bank loses money on the sale. This is the subprime crisis: some banks that had over-reliance on such loans found them in a financial crunch. And more than 2 million people find themselves ruined the United States, unable to repay loans (Robert, p. 30).

Discussion and Analysis

The global financial crisis of 2007 was comparatively recent in origin as compared to other financial crises, and is possibly persistent until now. It was triggered by increasing defaults on subprime mortgages and the disruption of the markets for mortgage-backed securities. The financial crisis took root in the United States of America, and spread to the United Kingdom and other countries the world over (Francisco, pp. 59). There were numerous things that lead to the financial crisis like the process of globalization that has been occurring since the part thirty years. The crisis began in the sub- prime markets in the United States and spread to the United Kingdom, remainder of Europe and the world. The world's markets were and still are highly integrated. The next trigger was the increase in leverage of the household sector and the corporate sector by way of the sub- prime crisis. Furthermore, this lead to having effects on the entire financial system. Additionally, majority of the risks were underestimated mostly in the corporate sector (Flannery, pp. ...