Aspects of Economic Crisis and Globalization

The origin of the U.S. financial crisis has its foundation in the fact that commercial banks and investment banks lent vast sums- trillions of dollars-for housing purchases and consumer loans to borrowers ill-equipped to repay. The easy lending pushed up housing prices around the U.S., which then ratcheted still higher when speculators bought houses on the expectation of yet further price increases. When the easy lending slowed and then stopped during 2006-2007, the housing prices peaked and began to fall. The housing boom began to unravel and now threatens an economy-wide bust. The housing bubble started to burst in 2006, and the decline accelerated in 2007 and 2008. Housing prices stopped increasing in 2006, started to decrease in 2007, and have fallen about 25 percent from the peak so far. The decline in prices meant that homeowners could no longer refinance when their mortgage rates were reset, which caused delinquencies and defaults of mortgages to increase sharply, especially among subprime borrowers.