| Research Paper Prospectus | Economics Capstone | 02/12/2012 |

Since the U.S. banking crisis of 2007, more than 280 banks in the United States have failed and presently continue to do so. With the closures of these banks, jobs were lost; and the economy has suffered greatly. The banking crisis of 2007 has been considered the largest since the Great Depression. Many researchers, policymakers, economists, and other individuals blame the subprime mortgage market and its collapse for triggering the U.S crisis; many also wonder how such a relatively small market as subprime could cause so much trouble around in the U.S, especially financial institutions that did not get involved with subprime lending or with investment in subprime securities. This paper analyzes financial and economic circumstances associated with the United States financial turmoil that has led to the banking crisis. Section 1 analyzes the collapse of the subprime mortgage market in the United States and outlines factors associated with it. Section 2 outlines the economic factors that led to the banking crisis in 2007. Section 3 summarizes suggestions of research about how to remedy the current crisis and possibly avoid crises in the future. Section 4 will discuss the conclusion of the research.
The first signs of the subprime mortgage market collapse in the United States were very high and unusual even for subprime market delinquency and foreclosure rates for mortgages originated in 2006 and 2007. Reinhart and Rogoff (2008b). High rates of foreclosures, declining home values, borrowers' impaired credit histories, destabilized neighborhoods, numerous vacant and abandoned properties, the absence of mechanisms providing entry to and exit from the distressed mortgage market and overall economic slowdown created a vicious circle which was beyond the capacity of market forces to find. The quality