After the dot com bubble burst in the US and followed by the 9/11 strikes in the WTC, The Central banks around the world slashed the interest rates to create liquidity and avoid an acute economic slump. Due to the reduced interest rates, the investors went for investments with higher risk and greater returns. This in turn caused the lenders to mortgage the loans to customers with weak credit history and likely to default. This created a high demand among the consumers and the housing sector went to an all time high in 2005 before it finally collapsed in 2006.
As a result of these activities, the foreclosure activities increased, large lenders and hedge funds declared bankruptcy and soon their was a decline in the economic growth and the consumer spending.
Culprits of the crisis:-
1. Lenders
2. Home Buyers
3. Investment Banks (They worsened the situation)
4. Rating Agencies (A possible conflict of interest)
5. Investor Behavior
6. Hedge Funds
.jpg)
No comments:
Post a Comment