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mortage crisis in the united states Essay

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The Economic Crisis in the US

The economic crisis is also known as the credit crisis, which is a financial crisis that affects the financial markets that have been going down since many years ago. The high possibility mortgages, also known as subprime, are a special type of finance, especially used for the purchase of houses and oriented to clients with lack of solvency, consequently with a higher risk than other loans. The type of interest is higher than personal loans, but in the first years it has a promotional interest, and the bankĀ“s payment result is higher. North American banks have a limit in the amount of loans they give, which is imposed by the Federal Reserve (Fed).
Since the debt can be an item to sell and economic transaction through buying of bonds, subprime mortgages can be removed of the individual, being transferred to investment funds or pension plans. In some cases, this investment could be made through a called carry trade. The problem comes when the investor (that can be a financial entity, a bank or a person) does not know the true risk assumed. In the global economy, in which the financial capitals run at a high speed and change from hand to hand normally and that offered financial products highly sophisticated and automatic, not all investors know the precedence of the operation.
The progressive rise of the types of interests from the Fed, also the usual increase of the payments in this class of credits made the delinquency rates and the carrying out levels increase, and not only the high risk mortgages. Evidence that important banking entities and great funds of investments had set their assets in mortgages of high risk aggravated a sudden contraction of credits. (Also known as Credit Crunch) and a big volatility of stock, generating an spiral of lies and investment panic, and a sudden fall of the stock exchange of all the world, especially because of a lack of liquidity.
Several factors were linked to demonstrate the way to...

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