The Root Of The Subprime Mortgage Crisis, Conduction And Analysis

Using Subprime Mortgage Crisis as an entry point, this article is trying to analyze the causes, transmission and impact of modern financial crises.After reviewing the classical theory and theoretical front of financial risks and financial crises, as well as the Subprime Meltdown analyses, the paper firstly excise Minsky Model into practice to explain the reasons for the eruption and upgrade of the crisis.Financial liberalization and innovation provided legal and technical backup, while expansionary monetary policy offered sufficient liquidity. Speculations from the general public, lending institutions, rating agencies and institutional investors in the market along with all these positive impulsion above created "Minsky Prosperity Cycle". However, the expansion of credit also enlarged financial fragility. At the same time, deficiencies of supervision and management system, loopholes of the rating system and lack of risk control methods accumulated this kind of vulnerability. When macroeconomic began to tighten and house prices decline, market participants got into financial difficulties. Once negative impulsion(s) happened, market expectations reversed rapidly and the crisis then broke out.Subsequently, this paper is trying to explain the transmission of the crisis from short-, medium- and long-term perspective respectively. In the short term, the crisis transferred through credit derivatives; in the medium term, transferred to related markets and products, market participants and product purchasers; while in the long term, the crisis will cause global economic recession through macro factors.Finally, this paper points out the impact of the Subprime Crisis on China's macro-economic and micro-financial market. From the macro perspective, the article makes a conclusion through empirical analysis that inevitably China's exports will be negatively influenced because of the reduction of U.S.'s consumption and economic growth, which will further decelerate China's national economic growth. However, this impact is neither direct nor serious. On the other hand, the crisis will cast a more significant impact on China's exchange rate, in the form of the loss of foreign exchange reserves, the rising risk of strategic investments, and even trade friction. China's reaction should include the combination of constrictive monetary policy and expansionary fiscal policy with a focus on equality, efficiency and sustainability.From the micro perspective, the crisis warned financial institutions in China rather than directly affecting. And the influence on capital marker is more complicated, including not only short-term negative impact, but also long-term effects and indirect effects, and will even intensify the chronic illness. However, in the long run, negative impacts can hasten further reform and improvements.