The subprimes crisis in usa
782 mots
4 pages
THE SUBRIME CRISIS IN USADEFINITION: 3 factors which define the subprime crisis: * It is a world crisis which began in February, 2007. It is considered as the biggest banking crisis since the Big Depression of 1929, and provoked a major turnover of the international banking landscape. * A subprime credit is a Mortgage credit granted to clients with modest income. * This credit is characterized by a rise of the interest rate.
CHARACTERISTICS: 2 characteristics : * The decline of the real estate prices since 2006. * The interest rates which raised → so the consequence is the incapacity of payment of numerous borrowers.
CONSEQUENCES: 2 consequences * The bankruptcy of the specialized establishments. * The Bankruptcy of millions of households obliged to abandon their house.
The question which we will try to answer is:
What factors explain the subprime crisis and what are the consequences on the banking sector?
Then the plan is: A) The causes of the crisis 1) The beginning of the crisis 2) The generalization of the crisis
B) The Effect of contagion of the crisis on the American banking system and the solutions 1) The contamination of the banking landscape 2) The consequences of the crisis on the market 3) The solutions to resolve this crisis
A) The causes of the crisis
1) The beginning of the crisis
→ First The FED increased the intervention rate from 1 % to 5,25 % between 2004 and 2006 to fight against the inflation.
→ At the same time the real estate prices decreased from 20 % in 2006.
→ Then the monthly salaries of the borrowers increased, so they couldn’t assure repayments.
→ The value of houses fell.
→ The credit institutions, supposed to be able to get back their stakes by selling the mortgaged houses, meet in trouble, because selling these properties was not enough to cover their losses.
Consequence: The imbalance of the real estate market which deteriorated so the prices