Sample Essay

The United States was also affected badly by this menace and it initiated when the Lehman Brothers declared their bankruptcy on 15 September, 2008 and at that moment researchers were claiming that the shock waves have entered the banking industry and the trust of the banking systems was tarnished because of this (M and C 2009). This actually resulted in the unprecedented government intervention in the markets and the causes of this disaster were enormous. The following factors that were actually behind these crises were discussed below:

Cheap money:

Cheap money was actually introduced in the economy and after the September 11 attacks the government actually pursued the policy of drastically sinking the interest rates. This also directly affected the housing prices and the low rates were flowing in the economy. The homeowners were allowed to actually pay of their interest rates and refinance the penalty that was associated with it with certain cheaper loans (M and C 2009).

Spending Spree:

People actually wanted to spend their earning and in order to purchase more real estate, furniture and high end goods they refinanced their homes. Therefore, a spending spree was pumping up in the economy it directly fuelled the inflated dollar.

Declining the adversity to risk:

The real estate market was affected badly by this scenario and people were taking credit but they were unable to give it back. The rules for a getting a house mortgaged were actually loosened and even borrowers can attain more credit through relaxed terms and conditions. The credit lines of many investors were overdue because of this scenario.

Complications in the financial products:

The financial products were complicated by the bankers of the Wall Street and subprime mortgages were bundled with certain other products and they were sold to the investors. Then a situation of toxic debt rose in the economy which is classified as the toxic debt. The investors on the Wall Street were holding the mortgages because the housing market suddenly collapsed.

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