In the years 2006 to 2009, the U.S economy faced a housing crisis that caused financial turmoil and panic around the world. The crisis arose because of flawed financial modeling and excess borrowing, based on the assumption that the house prices could only rise. Fraud and greed also play some part. The paper analyzes how the events unfolded based its impacts and the role of the government in the matter.
Major Problems
Many economic problems coincided with the mortgage crisis. The housing crisis resulted to the mortgage delinquencies and subsequent closure. Most of the housing related securities decreased in value substantially. There was a tremendous decline in investment in the residential sector. Additionally, there was a reduction in the household spending and on the general value of business investments. The reductions were eminent in areas that had a combination of larger housing value decline and extraordinary household debt (Anderson & Vikas 1). Almost nine million jobs were lost in the economy after the crisis. The feeling that one assumes in this situation cannot by any chance be so positive. Because some greedy personalities had a hand in causing the housing crisis, I feel that the problem hurts more. Until the perpetrators of the crisis are brought to book, the negative feeling of betrayal will remain alive within me.
Impact of the Housing Crisis
The housing crisis had deep detrimental impacts to the homeowners, the future generations, and the banking sector. The economy lost almost 6% of the total national workforce (Paul 1). A decline in the value of houses caused homeowners to incur a substantial amount of losses. The devaluation of the value of their stocks made them incur losses for quite some time. The New York Times indicate that the housing prices in the U.S fell with approximately 30% on average and the stock market declined by approximately 50% during the start of the year 2009 (The New York Times 1). Mortgage crisis resulted to the difficulty in acquiring loans. It became harder for the borrowers to refinance their loans especially after the peaking in the middle of 2006. Interest rates began to inflate; the flexible rate mortgages reset causing increased monthly payments. Due to the crisis, lending across banks dried-up initially followed by a negative effect on loans given to non-financial firms.
Consequently, the crisis has a tremendous impact on the future generation. It shapes the future dimensions of investment as investors will shy away from investing all in housing assists or stocks (Darlin 1). The crisis also affected the savings for the future generation. Those who had all their investment in the housing stocks lost their cash due to the subsequent devaluation. The future generation will be more cautious in dealing with mortgages bearing in mind the worst sides of the crisis of that time.
The government had a hand in the crisis. They had money to invest, but they decided to put it all in the housing market. It was due to the argument that mortgage investment was going to earn them additional cash at a lower interest rate that other sectors could do. The government did not take a proper initiative in containing the crisis as a major player. The government would have ensured that the homeowners are not on the verge of incurring any loss through the application of losses to firm's investors and the creation of monetary funds financed by the biggest organizations.
Works Cited
Anderson, Jenny, and Vikas Bajaj. "Wary of Risk, Bankers Sold Shaky Debt." The New York Times. The New York Times, 5 Dec. 2007. Web. 21 Oct. 2014. <http://www.nytimes.com/2007/12/06/business/06hedge.html?pagewanted=all>.
Darlin, Damon. "Mortgage Lesson No. 1: Home Is Not a Piggy Bank." The New York Times. The New York Times, 3 Nov. 2006. Web. 21 Oct. 2014. <http://www.nytimes.com/2006/11/04/business/04money.html?ex=1180843200&en=9975f15af03cfcbe&ei=5070>.
Paul, Krugman. "Don't panic about the stock market." Paul Krugman Don't panic about the stock market Comments. N.p., 20 Nov. 2008. Web. 21 Oct. 2014. <http://krugman.blogs.nytimes.com/2008/11/20/dont-panic-about-the-stock-market/>.
The New York Times. "The U.S. Financial Crisis: The Global Dimension with Implications for U.S. Policy _." Times Topics Blog. The New York Times, 12 Feb. 2009. Web. 21 Oct. 2014. <http://topics.blogs.nytimes.com/2009/02/12/the-us-financial-crisis-the-global-dimension-with-implications-for-us-policy/?_php=true&_type=blogs&_r=0>.
