Subprime Mortgage Crisis Causes

At the beginning of 2007, the Subprime Loan Crisis broke out in the U.S. and spread across the global financial market at an amazing speed. With its far-reaching influence, the current crisis is considered as the worst financial crisis since the Great Depression in 1930s. Far from ending, the subprime loan crisis worsens now. In fact, the crisis stemmed from the subprime loan market. Why did the financial product trigger such a severe crisis? What is the fundamental reason for the crisis?Firstly, this paper reviews the course of the subprime loan crisis and divides it into four parts. It is showed that the current crisis is different from the fromer ones, namely systematic spread, global influence and linkage characteristic. Then, the paper goes on to analyze the reasons for the crisis from the micro and the macro levels respectively. The lenders and the borrowers of subprime loans, the dealers of financial derivative securities and the bond rating agencies are four micro-economic entities, which play an import role during the crisis. The monetary policy, supervisory system and economy imbalance form the macro-economic background. On the basis of the aboving analysis, this paper points out that the micro factors are the direct inducements of the subprime loan crisis; however, the economy imbalance of U.S., forming under the current international monetary system, is the root cause of the crisis. Finally, the paper gives out relevant suggestions from three aspects, those are the relation between financial innovation and supervision, the interaction between the fictitious economy and entity economy, as well as the reform of international monetary system.