The Analysis Of U.S. Sub-loan Crisis Management Measures

In early 2007, as a result of the bursting of the real estate market bubble, theUnited States's second-largest sub-prime mortgage company——New CenturyFinancial Corporation declared bankrupt, this is the beginning of the Sub-loan Crisis.The loss of this crisis is veryserious, it is becoming a global financial crisis, the Asianeconomic and the European economic has also received the impact, for example,Iceland is facing bankruptcy, Japan's economy plunged into deep recession, SouthKorea's economy is deteriorating rapidly, the euro zone is suffering huge losses, andso on. In the United States, five major investment banks has become a history, thethird largest investment bank, Merrill Lynch acquired by Bank of America, thefourth-largest investment bank Lehman Brothers declared bankruptcy, the fifth-largestinvestment bank Bear Stearns merged by JP Morgan Chase, Goldman Sachs andMorgan Stanley became a bank holding company, Mortgage giant Freddie Mac andFannie Mae nationalized, bankruptcy of the bank has nearly30. In the United States, anumber of mortgage companies closed down. Although the sub-prime crisis have littleimpact on China's economic, the stock market fluctuations and the bubbles in the realestate market are the potential crisis of china, under the influence of the crisis theywill become the reasons of another financial crisis, in order to find how to deal withsub-loan crisis, the paper analyzes the sub-loan crisis impact on the global economyand the theoretical basis and the Actual results of a variety of management measureswhat The U.S. government take, summarizes a variety of governance measures, bothpositive and negative effects. Finally, on the basis of these analyses above, the paperdraws a lesson from the sub-prime crisis, and to put forward specific strategies to dealwith the sub-prime crisis.The paper includes five Chapters. Chapter one gives a general review of the theories involved in the sub-primemortgage, mainly focusing on the concept, the theories and the characteristics of thesub-prime mortgage. The characteristics include borrowers with poor credit; lots offinancial derivatives, risks can be transferred. As the existence of such characteristics,sub-prime mortgage institutions prefer high-risk high-yield loans, such loans havehigh default risk and lots of losses, and the losses impact other financial institutionsand real economy, eventuallyevolved into the economic crisis.Chapter two introduces the background, process and the reasons of the breakoutof sub-prime crisis. At the beginning of the crisis, U.S. economy experienced threestages: the process of lowering rate from 2000 to 2002, the bursting of the real estatemarket bubble, the process of heightening rate from 2004 to 2006. The mainly reasonsof the crisis include the policies which Federal Reserve promulgated, and theproblems of the sub-prime market, but the fundamental reason is Neo-liberalism.Neo-liberalism has the characteristics of laissez-faire, these characteristics lead to theabsence of timely control of the crisis. Although the United States has taken a seriesof costlymeasures to save the economics at present, U.S. economystill not out.Chapter three centers on the influence of the sub-prime crisis on globaleconomics, mainly including of financial agencies, money market, the bond marketand stock market, monetary policy, credit market, real estate market, the foreignexchange market, the real economy and employment.Chapter four analyzes the theories and Reality effect of the sub-prime crisismanagement measures. According to the Keynesian theory of effective demand, theUnited States now is in the lack of effective demand. At present, the main objective oftreatment is to increase the demand. The paper makes use of IS-LM model, comes tothe conclusion that the United States is in a period of severe economic recession; thegovernment need use expansionary fiscal policy and expansionary monetary policytogether. Therefore, the U.S. government has adopted some measures such as a capitalinjection, lowering interest rates and tax, and nationalization. All of these measureshave the active role, for instance, stimulating business investment and household consumption, restoring market confidence. There are also negative effects, forexample, increasing the debt of government, and so on.Chapter five is about what we can learn from the experiences of sub-prime crisis.Facing the crisis, China can not sit back and relax. China's financial industry shouldlearn from it, actively take all precautionary measures, to prevent the Negative impactof the sub-loan crisis.We propose several helpful, significant solutions to the problems existing in ourcountry's economics development, such as strengthening financial supervision andrisk management, changing the way of economic development, expanding domesticdemand, improving macro-control.