Beginning in late 2006, Americans began to hear news of a weakening real estate market and the expected collapse of the sub-prime lending market. More currently the news is reporting that the American economy in general is in trouble and we are headed for a recession. Most of the reports on the American economy go back to the sub-prime lending market and the increase in sub-prime delinquencies and foreclosures as the reason for the decline in our economy. Many say that, as a result of the collapse of the sub-prime market, companies have been forced into bankruptcy, the housing market has collapsed, and the American economy has suffered. But can this one market be blamed for the current state of the American economy, or are the other factors which have caused the economy to pull back significantly? This paper is intended to look at the possible causes of America's current economic crisis and to determine whether the sub-prime lending was the main reason for the problems plaguing America today.
Since the economy weakened beginning in early 2007, fingers have been pointed many different possible causes - first to the sub-prime lending market, with lenders selling unaffordable loans to unsuspecting borrowers and offering inflated loans to borrowers who would never be able to pay them back, to the bust of the housing bubble, to the government for keeping interest rates low and allowing Americans to "free spend" for too long, and finally to the American people for letting their free-spending habits put the U.S. dollar in a weak position against the rest of the world.
The issue that has received the most criticism is the sub-prime lending market that was a hugely popular ...
... middle of paper ...
...mortgage vehicles such as sub-prime loans are desired by the American consumer, they will be available. But, for consumer free will to be successful, the consumer must show self-control and planful action, otherwise consumer decision making is impaired. Secondly, I believe it is the responsibility of the government to limit the nation's reliance on foreign investment. As of April 25, 2008, the total U.S. federal debt was approximately $9.5 trillion, which averages out to $31,100 per U.S. resident. The government needs to stop looking at the trees and look at the forest - meaning stop taking steps to keep America's economy on an upswing at the expense of our reliance on foreign cash. Until Americans and their government stop spending and start savings, even though our situation may seem improved, it is simply a house of cards, ready to tumble with the smallest wind.
Need Writing Help?
Get feedback on grammar, clarity, concision and logic instantly.Check your paper »
- The argument over who should be at fault for the subprime mortgage crisis and housing market collapse in the United States has been a heated debate. Even though home foreclosure keeps rising, there should be some accountability for the economic meltdown resulting from the subprime mortgage situation. Should we blame banking institutions, mortgage lenders, brokers, and investors for this crisis. Should minorities be blamed for recklessly accepting loans and defaulting on them after realizing they could not meet their obligation.... [tags: Economics ]
1589 words (4.5 pages)
- Subprime lending occurs when a financial institution lowers lending standards and lends to individuals who cannot prove their credit worthiness, usually possessing a credit score below 600. This also includes individuals who lack sufficient income or assets. Individuals who cannot secure a conventional mortgage will turn to subprime mortgages, securing their loans at a higher than prime interest rate. Not only will there loans have higher rates of interest, these rates can climb. Unlike traditional mortgages, there is often a pre-payment penalty with a subprime mortgage as well as other miscellaneous fees.... [tags: lending and credit in America]
1463 words (4.2 pages)
- Introduction The American Dream is often thought of owning a home and is a motto so to speak that Americans have lived by since their countries inception. Government agencies and lenders have always been striving to create affordable housing for all (Immergluck and Smith, 2006; Whalen, 2008). In recent years, the subprime market has allowed many to live the American Dream who could not prior. However the subprime market has proved very unstable in the face of price depreciation and a recession, causing a glut of foreclosures.... [tags: Subprime Mortgage Market]
2518 words (7.2 pages)
- 1. Introduction 1.1. Background The Financial crisis was triggered in 2006 when US housing market began to crumble as the housing price reached their highest point after years of speculative price increase; many house owners defaulted on their loans, particularly subprime mortgagers (Archarya et al., 2009). Starting in mid-2007, the outburst of US housing bubble in the subprime mortgage leads to the global financial crisis that has been often so called ‘Great Recession’ (Verick and Islam, 2010).... [tags: subprime mortgages, Great Recession]
3570 words (10.2 pages)
- Since I do not have a mortgage to foreclose, I know about it because I have heard my parents discussing it and I have seen clippings in the newspapers as well as on the television. Now the school is evoking thoughts, and I am encouraged to perform cursory research and present my best thoughts as my recommendations for solving the foreclosure crisis. Every one has been talking about the stimulus and the Obama’s plan to avert foreclosures. But it seems that the program is designed for failures. It is said that if one fails to plan, then the plan must be, to fail.... [tags: Economics]
1127 words (3.2 pages)
- In an ideal economic model, individuals are portrayed as omniscient, rational beings. Optimal choices are calculated in an instant. Market trades are made without hesitation. However, any good-sensed economist knows that such is not the case in the real world. Individuals make irrational decisions all of the time. People buy things that they do not need and cannot afford. They make unprofitable investments. They take up time in making their financial decisions. In other words, participants in the real world economy are only human.... [tags: Economics]
1133 words (3.2 pages)
- Foreclosure.com Scholarship Essay When trying to come up with solutions to a crisis, a good beginning point is to look at how the crisis came about in the first place, then looking to change the influential factors. So what were the factors involved in the foreclosure crisis. It is widely agreed that the increase of subprime loans is largely, if not wholly, to blame. From 1996-2004, 9% of mortgages were subprime. From 2004-2006, this number jumped to 21%- $600 billion or one fifth of the U.S.... [tags: Economics]
1440 words (4.1 pages)
- Foreclosure. Only recently has the term become a buzz word among the American public and various media. The crisis that has enveloped the United States has initiated widespread questioning of the very financial systems in which the American innovators have grown to prosper. Although the foreclosure crisis is often viewed as a product of greedy financial institutions, causation cannot be distilled to individual constituencies; further regulation on various components of the crisis can develop the preconditions for recovery, but 2009 has elucidated a stunning reality: the American financial system possesses an independent resiliency that is currently rebounding and developing recursive and fut... [tags: foreclosures,]
2092 words (6 pages)
- ... Basically, the way the industry is structured, all of the risk associated with subprime lending rest upon the borrowers. Therefore, lenders are not concerned with any risks because there are no consequences for their actions. For example, when an individual purchases a vehicle there are risks involved. If any problems arise, the individual will have to evaluate the problems and proceed to have them fixed. Individuals, by law, purchase auto insurance for the vehicle to remove some of the risk related to its ownership.... [tags: bursting the mortgage bubble]
1924 words (5.5 pages)
- introduction The 2008 financial crisis led to a sharp increase in mortgage foreclosures primarily subprime leading to a collapse in several mortgage lenders. Recurrent foreclosures and the harms of subprime mortgages were caused by loose lending practices, housing bubble, low interest rates and extreme risk taking (Zandi, 2008). Additionally, expert analysis on the 2008 financial crisis assert that the cause was also due to erroneous monetary policy moves and poor housing policies. The federal government encouraged the expansion of risky mortgages to under-qualified borrowers.... [tags: mortgage foreclosures, mortgage lenders]
1322 words (3.8 pages)