* Low engage rates
The Federal Reserve could earn controlled asset-price inflation, but its attention was focused on sustaining the economic recovery. It unheeded other signs of economic stress and risky behaviors by financial institutions. During 2000-2003, Federal Reserve number 1ered the Federal Funds score in direct to soften the collapse effects of the dot com bubble. However, the Federal Reserve decided to keep the low by 2003-2006 as well. These cheap credits made it besides blue for people to buy firesides or make other enthronisations base on pure speculation. Cheap credit created more property in the system and people wanted to spend that m unmatchabley. As a result, more and more people wanted to ache their own house, just because the interest rates be too low, and they dont need to worry about the default.
On the other hands, investors are sitting on their pile of money, postponement for good investment opportunities to turn them into even more money. Traditionally, they go to the US Federal Reserve to buy Treasury bills believed to be the safest investment. But, at that time, the interest rate was only 1%.
1% is a very low return on investment, so the investors say no to treasury bills and changed their direction to buy CDOs( collateralized debt obligation) from investment bankers. At this point we see the effects of low interest rate, we will see next how this cause housing bubble, which is one of the core reasons to the financial crisis.
* US housing bubble
Due to the low interest rate, a lot more people are asking and getting their mortgages now. This caused the demand for house to rise, and so does the house price. And at that time, it is believed that the house price will rise forever. On the other side, investors find their CDOs are given more returns than the T-bills, so what they do is simply...If you want to get a full essay, order it on our website: Orderessay
If you want to get a full essay, wisit our page: write my essay .
No comments:
Post a Comment