Analysis Of Subprime Mortgage Crisis In The United States

In Feb.2007, the Subprime Mortgage Crisis broke out in the United States, this crisis started from the real estate market, then spread to the financial fields, ultimately, it turned out to hurt the economy in the U.S. and the world as a whole. Now, each country suffers differently from this crisis, which is still spreading around the world. The American economy was thriving two years ago, and the American financial system was canonized by most of the people in China, but it seemed that the lesson was serious to us.In china, due to unopened financial system, the impact of the Subprime Mortgage Crisis on China's economy is relatively smaller than other countries, but we should also learn from this crisis, it must be step by step to reform the financial system.This paper is trying to analyze the background,the reasons for this crisis,the process of the beginning,development and the influence of Subprime Mortgage Crisis.Finally, based on the analysis, this article summarized what lessons we should learn from the crisis in financial fields to promote domestic economy develop more healthily and orderly.Since 2006, the housing market in the United States continued murkily, while the bank interest rate went up consistently. Many mortgage lenders became unable to make payments, some institutions suffered significant losses. Due to the bankruptcy of American financial institutions, lots of investors became worried about the financial market and economical foreground, then American economic started to slowdown, Subprime Mortgage Crisis broke out in the US. From the very beginning, it was a pure crisis related to an individual zone and financial products. Ultimately, it turned out to be a huge storm of the financial market from all over the world via The ButterflyEffect.This paper briefted the whole process of the occurrence,development and evolvementof American Subprime Mortgage Crisis, the background and development of which also be analylized in this article. Mainly introduced the cause of this crisis: easy monetary policy,short-term conduct of the financial institutions,the irresponsibility of regulatory organization,the lackness of the Rating Agency.Then this article made a contrast about not only two economic thoeries of John Maynard Keynes and Alan Greenspa, but also Subprime Mortgage Crisis,the Great Depression in 1929 and The Asian Financial Crisis. Through this, I tried to summarize the character of Subprime Mortgage Crisis, elaborated the influence of Subprime Mortgage Crisis on the world economic, especially the instructions and enlightenment for us.Subprime mortgage loan refers to the loans provided by a bank or subprime mortgage company to housing buyers with poor credit or low income. Subprime mortgage requires a low lever of credit records and repayment capablities of those borrowers, while its interest rate is usually 2-3 percentage higher than normal mortgage loans. Moreover it has long loan period with 20 years'debt service and no down payment loans, thus reduce the stress to repay. The first two years'interest rate is lower while it is becoming higher and higher when it approaches its loan period. Subprime mortgage crisis is a severe financial storm happened in USA due to the increased bankrupt of subprime mortgage companies, forced shut down of investment funds and dramatic turbulence of stock market.The movement mechanism of subprime mortgage in USA is like this: the loans are not borrowed directly from the banks but the mortgage companies. After that the mortgage companies sell them to the banks. The banks repack the mortgage to become mortgage backed security and then sell them to investor to shift risks. Meanwhile, the bank will sign a contract with mortgage companies which request them to buy the mortgage back in case the borrowers default in payments on the loans. In order to further disperse the financing risks, the bank will purchase insurances like Credit Default Swap contract to against the rise in mortgage delinquencies. The full credit chain is pulled in infinite way.While the price of the real estate is growing up consistently, these loans' risks could be decoposited easily through changing real estate assets into money to reduce the losses of the financial institutions.Under such a compactness monetary policy, the up-growing interest rate has becoming a heavy burden for home-buyers, especially for those mortgage borrowers. Once the loaners could not afford the real estate, financial institutions would sell the mortgage to reduce the latent risks. Unfortunately, assets recycled in this way compensate neither the loan nor the interests, which increase the risks of the financial market. Bankruptcy of the largest sub-crime publisher signifies the sub-crime crisis turns out inevitably. From financial system to the real economy, the large-scale sub-crime crisis attacks the whole world sharply and unexpectedly, what is the worse, this crisis will continue for a very long time.To change the over-dependence on exports, the development of large domestic demand-led economy; to improve the urban social security system so that the residents dared to consumption; to vigorously develop the rural development and raise the income of farmers; to regulate the real estate market, effective remediation of real estate transactions part of an offense; to strengthen import and foreign investment, improve the structure of export trade, to strengthen international financial cooperation, to maintain the RMB exchange rate relatively stable; to speed up the pace of imports and investment to maintain the relative balance of international payments; to maintain exports in the same under the premise of further adjustments to the structure of exports; to use this crisis to improve China's international standing and the right to speak; to implement a proactive fiscal policy and a moderate easing of monetary policy, to ensure stable and rapid economic development; to encourage the development of SMEs; to strengthen financial supervision, regulation and innovation to deal with a good balance between; to manage the flow of capital; to enhance the financial regulatory agencies monitoring the level of their own; the scientific concept of development should deal with financial innovation and the relationship between risk prevention; to improve the financial institutions to guard against the risk of awareness, restore public confidence and trust; to strengthen and improve the financial institutions internal control systems and risk management, business development to strengthen the soundness of banks, we can not blindly pursue short-term profits; to strengthen the community of personal credit information system building to improve the information disclosure system to increase transparency.