Credit Crunch Economic Impact

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.In 2007 and 2008, the credit crunch happened, which had a great negatively influence in many countries all around the world. Philippe Jorion said that the scale of losses in the credit crisis that started in 2007 has been unprecedented.(①) Its “aftershock” in many domains led to a series of problems, one of the most significant consequence was the famous financial crisis. This essay would focus on the origin of the credit crunch and its the biggest impact that economical crisis. Introduction Before conceptualising the definition of the credit crunch, the reader should distinguish the meaning of subprime crisis, credit crunch and financial crisis. Subprime crisis states The United States Federal Reserve Board increased the federal fund’ s…show more content…
In July of 2008, due to heavy losses, Fannie Mae and Freddie Mac that as the guarantee of US housing mortgage loan’s liquidity were thrown into jail, which means that the crisis had swept across the whole American subprime markets, and subprime markets must face severe challenges. Meanwhile, the Californian local bank Indy Mac which is a specialised bank working on Alt-A services and it never runs on the subprime mortgages field bankrupted, it means that the crisis had effected on other domains. The final consequence is that the financial crisis swept across the wold. Lehman Brothers went bankrupt and several largest financial companies failed. The crisis destroyed the real economy form financial field. It was useless that the government wanted to help the markets. As Jason Allen and Teodora Paligorova state in their essay, “In the financial crisis banks passed the liquidity shock only to public firms”(③), all the bank could do was that passing the risk to aboard banks. As soon the number of unemployed people increased significantly, consumer spending was…show more content…
In the whole credit crisis period, the speculation action played an important role in the crisis. Since 2000, with the development of the estate market, the increase of house price was an inevitable phenomenon. Many housing mortgage and loan companies seized this opportunity to give various types of the mortgage loan, especially the subprime mortgage, which caused the bubble economy. Graham Turner wrote that in the short run, housing bubbles could provide a stimulus to economic growth if they hoodwink people into believing they are wealthier.(⑦) Absolutely, it did more harm than good. The second main reason is that lock of the limit of lending, the problem is on the subprime mortgage. Applicants of the subprime mortgage do not have to any proofs of income, on the contrary, the housing mortgage and loan companies designed many kinds of loan products for applicants to meet their needs of a loan. So, to repay the loan, the only way those applicants hope was the increase in housing

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