An Economic Event Intertwined With Credit Crunch - 951 Words

1.Introduction An economic event intertwined with credit crunch is the U.S. subprime mortgage crisis. In 2007, the subprime mortgage crisis dealt a huge economic blow to America and then had a great impact on the world economy. Although several actions, such as lowered the target for Federal funds rate and the discount rate, were taken, the crisis still had severe, long-lasting consequences, which makes the world economy still in a slow recovery so far. The credit crunch of 2007 was triggered by several factors. Analyzing the cause of credit crunch can help us reduce the probability of it and then prevent financial crisis in the future. This essay consists of three parts. At first, it will discuss some causes of the credit crunch of 2007.†¦show more content†¦****In the 1990s, shortage of financial capital and low-quality borrowers forced the banks to reduce the loan supply. The credit crunch of 2007 is more complicated than ever before. The first reason was that the acceleration of globalization involved more international investors, so the credit crunch had more global implications. And the other reason was that new ways of packaging and reselling assets had been introduced. Several factors should be taken into account when we trying to figure out what result in such a crisis. 2.2 The development of subprime mortgage market ****When discussing about the credit crunch of 2007, the United State subprime mortgage crisis is a good point to start with. The direct cause of this crisis was the bursting of the U.S. housing market bubble, but things can date back to about 2000. At the beginning of the 21st century, house prices in America started to experience an unprecedented rate of growth due to a low interest-rate environment. From 1997 - 2006, according to the Standard Poor’s / Case-Shiller national home-price index, the U.S. housing prices increased by 124%. There were a number of causes of this phenomena, such as the low Fed funds rate. Although other western countries also experienced the similar trends, for example, housing prices in the U.K. increased by 194%, while those