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The Economic Crisis Essay

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Below is an essay on "The Economic Crisis" from Anti Essays, your source for research papers, essays, and term paper examples.

Right now in America, we are in an economic crisis that is slowly tearing the seams that holds the country’s banking system together. This ‘recession’ affects everyone from single families to giant corporations because of the nature of the crisis. It began slowly, and is now moving quicker and quicker, with no apparent end in sight. It seems that everyone in America played their part in a tedious game that only took a matter of time to come crashing down around all of us.

This crisis began to happen in 2007 when the rate of sub-prime mortgages and lending skyrocketed because of a bubble in the housing market. Before 2000, subprime lending was taboo; but after the bubble began to show the values of houses rise, the increase was expected to continue. All of a sudden, sub-prime borrowers seemed like a great idea to lenders. Adjustable Rate Mortgages were thought up, which had low rates and no down payments. Companies began to ignore their risk management procedures, and no one really called anyone on the risk taking.

Lenders began originating loans, but not keeping them. They packaged them into "Collateralized Debt Obligations" , and sold them to different investors based on risk. Because of this new way of lending and the higher demand, financial institutions borrowed more and more money. Then a panic hit in 2007, causing asset prices to drop, and financial institutes had very little real money. Banks essentially played hot potato with the toxic assets, passing them from person to person, and thought that whoever wound up with them last had to worry about the consequences. This was a plan headed for disaster, fueled by irresponsibility. Now everyone is being punished for the lenders actions.

Businesses are one of the many groups affected by this crisis directly. It was hard enough with just a recession, but now banks are much stricter when it comes to lending. Surveys done show that 63 percent of companies with less than 100 employees are having trouble...

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