Analysis On The Subprime Mortgage Crisis

The subprime mortgage crisis began in 2006, has been turned into a global financial crisis, the U.S. and has caused tremendous economic impact to the world and American economy. States have taken measures to save the market. Although the impact of the subprime mortgage crisis has been erased , but the measures did not completely reverse the consequences caused by the subprime mortgage crisis.As the world's most developed financial and securities market, why would such a strong financial crisis happen to The United States, analyzing the causes of the crisis and the impact to the United States, the world economy and China has a very important practical significance to avoid and defuse the crisis on China's economic negative factorsThis article is divided into five parts: the causes and its evolution of the U.S. subprime mortgage crisis, the impact to the U.S. sub-loan crisis, the measures and tne effectiveness of the Fed and the U.S. government to deal with the subprime mortgage crisis, the Enlightenment to China.The first part introduces the basic situation: the arising and evolution of the subprime mortgage crisis. The subprime mortgage crisis outbreaked with the bankruptcy of the New Century Financial Corporation. And experienced three parts: from financial derivatives crisis to bank crisis, the U.S. dollar assets crisis, the liquidity crisis from USA to every country.The second part describes the causes of the subprime mortgage crisis in detail. The causes of the subprime mortgage crisis lies in the U.S. network crisis. The vigorous Internet myth did not bring about prosperity, but the drastic devaluation of the Nasdaq. In order to make up the huge network crisis, the subprime mortgage crisis appear on the stage. There are some practical reasons why the subprime mortgage crisis happened. For a long time the United States pursues a low interest rate monetary policy under the thinking of "anti-recession". Low interest stimulates the mobility of the United States and the development of the real estate industry. The burst of the real estate bubble is the fuse of the outbreak of the subprime mortgage crisis. Subprime mortgage business is different from the traditional loan business. Subprime mortgage can be divided into different products, although these products achieve the transfer of risk, but do not reduce the risk, but on the otherwise, expand the scope of the risk to some extents. The real reason of the subprime mortgage crisis is the abuse of the financial derivatives and the flawness of the regulatory system.The third part introduces the influence of the subprime mortgage crisis in United States. The subprime mortgage crisis has impact on both virtual economy and real economy. Among them,The impact on the virtual economy are the U.S. stock market turbulence, a large number of mortgage companies, heavy losses that the investment banks suffered. The impact on the real economy is real estate downturn, the decline of the manufacture industry and a very high unemployment rate, sharp drop of household consumption and business investment. also, the subprime mortgage crisis has impact on the development of the world economy. The European Union, the United Kingdom, Russia, Japan, Korea, Singapore and other countries fall into a serious financial market turmoil. The Major developed economies faces a recession. Global trade has been Seriously affected because of the Economic downturnAnd the Weak market in the USA. The worldwide Inflationary pressures are becoming bigger and bigger.The fourth section describes the United States how to deal with the subprime mortgage crisis and the effectiveness of their measures. The U.S. Federal Reserve reduced the discount rate, while cutting down the interest rates in a row at the same time. Also they authorized the Federal Reserve Bank of New York to create a new financing tool of the discount window for the primary traders. The Fed hoped to maintain the domestic financial stability, prevent the financial institutions to collapse and disorder through the above mentioned measures. In order to preventing the subprime mortgage crisis in the United States bring further bad impacts, the government has carried a series of interventions, including the mortgage relief plan, and the nationalization as well. On October 3rd, 2008, the United States House of Representatives passed the "emergency economic stabilization in 2008 Act" and also a 700 billion U.S. dollars' financial rescue plan. The methods United States dealing with this financial crisis can be generalized as follows: amended the old law, promulgated new regulations, disclose updated information, and castigated the financial institutions who cheated the house buyers and the bond investors. Meanwhile, a international joint intervention is so important to deal with this the subprime mortgage crisis, especially in this internationalization days.The part five analyzes the impact and the enlightenment to China that the United States bring about. A lthough China has been influenced in this crisis, but the scope of the impact in terms of the depth or impact is relatively minor. The influence to the China's economy are exports fell, the depreciation of the US dollar has impact on china's export enterprises to a certain degree; government's macro-control becomes more difficult, on one hand, they face the expectation of the appreciation of the RMB, the dollar devaluation and the inflow of hot money. On the other hand, the rise of commodity prices put inflation before us. The U.S. dollar assets that the China's foreign exchange reserves and commercial banks invest suffered a great loss. The policy that we should take is that adjust the structure of China's foreign exchange reserves; enhance the proportion of hard currency; the implementation of a wide range of export strategies; foreign trade enterprises should also improve the degree of importance attached to the domestic market; actively and steadily push forward the China's foreign investment enterprises. summing up the subprime mortgage crisis, we have much to learn. First of all, the introduction of the financial derivative products and tools should be more cautious. Secondly, we should step up financial institutions by external supervision. In addition, we should improve the individual credit system construction, strictly regulate the conduct of assessment agencies.