US Financial Crisis
US Financial Crisis This paper aims to describe the US Financial Crisis in terms of causes, impact, and remedial actions taken by the public and private sectors. It presents the thesis that the financial crisis is also a crisis of values that prompts a reevaluation of the premises of American capitalism. In particular, that prosperity is the foundation of peace and order. A review of literature provides the basis for a short commentary on the subject. Preliminary review of literature on the subject brings to fore some distinct patterns in consumer and investors behavior that make them peculiarly venerable. First is the tendency of investors to join the bandwagon of speculative investment and of putting their money where others put theirs. Second is an apparent lack of understanding on the relationship between risk and returns. Third is an apparent lack of appreciation for the principles of supply and demand. The principle states that excessive supply will reduce the price and demand for a product to the advantage of the buyer, while a lack of supply will increase demand and price of a product to the advantage of the seller.
Causes
Economists stress the importance of tracing the root causes of the financial crisis in order to provide a systemic solution to the present financial crisis. Most references present the cause of the financial crisis to be the “subprime mortgages.” However, subprime mortgages by itself did not cause the housing bubble to implode; many other factors contributed to the implosion. Traditionally, a lending institution, such as bank, would grant a loan based on the capability of the borrower to pay and on his/her ability to guarantee the loan with a fixed asset or collateral. The borrower mortgages the fixed asset to the lending entity, who in turn gains the right to “foreclose” a mortgaged asset and to