Cause of Sub-Prime Crisis

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The sub-prime crisis has led to a financial crisis in 2008 to 2009 that impacted many countries around the world.
Discuss the causes of the sub-prime crisis and the major parties responsible.

As defined by investopedia, sub-prime is “a classification of borrowers with a tarnished or limited credit history. Lenders will use a credit scoring system to determine which loans a borrower may qualify for. Subprime loans carry more credit risk, and as such, will carry year of 2008 and 2009. The market instability was contributed by many factors, which hurt individuals, businesses, and financial institutions hard. Many financial institutions were left holding mortgage backed assets that had dropped greatly in value. The crisis was a result of too much higher interest rates as well.”
The subprime crisis was a nationwide banking emergency that caused recession due to the borrowers being approved for loans that they could not afford – resulting in a large amount of default and foreclosures.
The loans were largely based on the assumption that the value of home prices would continue to increase. There are a number of theories as to what led to the sub-prime crisis. It is believed it to have been caused through several factors.
The crisis began with the bursting of the U.S. housing “bubble” that occurred in 2001. A housing bubble is defined as a temporary condition caused by unjustified speculation in the housing market that leads to a rapid increase in real estate prices. In the wake of the dot-com bust, and the September 11, Former Federal Reserve Board Chairman Alan Greenspan dramatically lowered interest rates to historically low levels, from about 6.5% to just 1% to keep the economy strong. This made banks borrow from the federal for only 1% interest rate. There was an abundance of cheap credit which made it easy for people to buy houses or make other investments…...

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