Monies Monies Monies

In: Business and Management

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he causes of global financial crisis

1、Boom and burst in the housing market

Low interest rates and large inflows of foreign funds created easy credit conditions. Subprime lending contribute to increase the housing demand.This fueled rising house prices.This housing bubble resulted in quite a few homeowners refinancing their homes at lower interest rates. This led to a building boom. Easy credit encouraged borrowers to obtain ARM. If borrowers could not make the payments ,they would try to refinance. Refinancing became more difficult, when house prices began to decline in USA. Borrowers found themselves unable to afford higher monthly payments ,then default. This places downward pressure on housing prices.

2、Speculation

Speculation in residential real estate has been a contributing factor. Media widely reported condominiums being purchased while under construction, then being sold for a profit without the seller ever having lived in them. Speculative bubbles are fueled by "contagious optimism, seemingly impervious to facts, that often takes hold when prices are rising." Speculative borrowing has been cited as a contributing factor to the subprime mortgage crisis.

3 、High-risk mortgage loans and lending /borrowing practices

Lenders began to offer more loans to higher-risk borrowers. The risk premium required by lenders to offer a subprime loan declined. Lenders have offered increasingly risky loan options. Mortgage brokers, while profiting from the home loan boom, did not examine whether borrowers could repay. Mortgage fraud by borrowers increased.

4、Securitization practices

Securitization, combined with the high ratings, meant that mortgages could be originated almost at will, with the risk shifted from the mortgage issuer to investors at large. Issuers had incentives to lower their underwriting standards to increase their total profit.…...

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