The Origin of the U.S. Economic Recession
A numbered list, of the 10 steps that led to the economic recession of the United States of America.
- Alan Greenspan lowers interest rates to 1% on federal treasury notes, investors pass on such a low return, but the banks on wall street, now have a place to borrow from, with only 1% interest rate that they have to pay back, and with abundances of surplus in other countries, this gives even more places for banks to borrow from, creating…
- Easy Credit. Easy Credit, was fueled by the US, and foreign capital growth.
- The Easy Credit allows more people to buy houses causing a Housing Boom, the increase of demand raises the prices of houses
- Almost everyone who wanted a house, now has one due to the easy credit. Wall Street became wealthy with all the cheap credit, and decided they wanted more. Investment Bankers, bought mortgages from Mortgage Lenders, and turned them into CDO’s, which investors could invest in. The demand for CDO’s remains high.
- Investment Bankers, having huge success with the CDO’s, want more. The Mortgage Lender, has no mortgages to sell to Investment bankers, so they lower the loan standards. At this point, there are now less requirements to get a loan, giving less responsible people, a chance to get a loan, why do they not care? They make money off of the selling of the mortgage, and it no longer is there problem, but the investment bankers problem.
- Housing prices, which had been practically rising forever, began to fall. The incomes of the families throughout this time had remained the same as housing prices had been rising, making houses, unaffordable, even with the easy loans. As houses were still being built, the market had to correct itself to the natural laws of supply and demand, and this resulted in the fall of housing prices.
- The financial market had not planned for housing prices to drop, and were completely dependent on the thought that they could not, in fact, a “safe” investment in a CDO was considered safe because it was backed by houses of good increasing value. The fall of housing prices completely overturned the system.
- Panic, virtually stopped lending. Some, afraid they would not get their money back, others could not afford it, after losing so much capital.
- The lack of credit caused the mad selling of stocks, bankruptcies, cutoffs, increased unemployment, lower spending, and less production.
- The global economy shrinks, and there is less money to go around.
0
Liked it
Liked it
User Comments
Post Comment
