Reasons And Enlightenment Of Subprime Crisis

From 2004 to 2006, Federal Reserve had raised the Federal Fund Rate for 17 times, which cooled the real estate market rapidly. The problems in the subprime loan market appeared. In March 2007, New Century Financial declared bankruptcy and subprime loan crisis broke out in the U.S. Subprime crisis, or subprime loan crises, stemmed from large number of default in the subprime loan market and turned out to affect the whole world. Many famous international financial institutions were badly hurt in the crisis and some even faced with bankruptcy. The crisis not only made the stock markets and foreign exchange markets fluctuate dramatically, but also pushed up the commodity prices remarkably, which has hurt the economy in the U.S. and the world as a whole.This paper takes a look at the mortgage market in the U.S., especially the beginning and the developments in the subprime loan market. Then, it introduces securitization and its derivative products in the market. After that, the paper goes on to analyze the reasons for the break out of subprime crisis as well as the international background of the crisis. Finally, based on the analysis, the paper gives out not only suggestions for the development of China's mortgage market, for the financial innovation in China, and for the individual and institutional investors but also policy advice to cope with the problems which result from the current international monetary system.