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2008 U.S. economic financial crisis: sub-prime loans

Please help me answer these questions about the economic recession and the housing crisis.

1. How did the housing market affect the 2008 economic recession?
2. Discus How did the Banks influence the behavior of borrowers.
3. Briefly describe how the president and the government reacted to the 2007 to 2009 recession, and was it the right answer?
4. What was the cause and effect of sub-prime loans?
5. Discuss the current mortgage and housing crisis in U.S.
6. Discuss the need for federal government interventions in these crisis.

Solution Preview

1. The housing bubble that reached its acme in 2006 led to the values of securities connected to real estate pricing to fall, leading to problems for financial institutions globally. As housing prices declined, many large investment and commercial banks suffered losses and faced bankruptcy. The housing bubble followed by a price decrease which is called the housing price crash. The owners of the houses were left holding a negative equity. The low level of lending standards was fostered by relaxed lending standards by government affordable housing policies.

2. The banks directly influence the behavior of borrowers by lending more freely or by lending very strictly. For example during the housing bubble banks began giving out more loans to potential home owners, without complying with strict lending laws. If regulations are not followed the borrowers tend to borrow more than their capacity. Borrower for house loans borrowed more than their capacity to repay or their level of earning.

3. The president and the government reacted to the 2007 to 2009 recession through stimulus measures. The Federal Reserve reduced the ...

Solution Summary

The response provides you a structured explanation of financial indiscipline and economic recesssion . It also gives you the relevant references.