Economic Analysis 2009

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With the new year of 2009 came a new President, new economic policies and a very poor economy. Towards the end of 2008 people feared a recession and that is what followed in 2009 with unemployment rates skyrocketing. Currently, the United States of America is witnessing one of the largest financial crises since the Great Depression. How did the economy in the US fall so far? Several factors have contributed to the crisis such as the faltering of mortgage loans, the subprime mortgage lending problems, and the restriction of credit to consumers and businesses. This proverb perfectly describes the US economy this year, “it’s always darkest before the dawn.” So far 2009 has been dark, and according to Ben Bernanke the remaining part of it and the new year of 2010 should improve and the economy should rise from the darkness. One of the leading causes of the crisis was the numerous mortgage loans that consumers from low credit to high credit risks were able to obtain. Banks and lending institutions started lending to more high risk borrowers and charging them a much higher interest rate to compensate for the risk factor involved. The lending institutions then bundled the good mortgages along with the bad ones and sold them to potential investors. The lowered interest rates and the possibility of refinancing homes triggered a deep rise in sales. This rise increased the demand for houses and thereby drove up the prices of homes. As a result of the demand for mortgages, housing prices increased and so did interest rates. Consumers could no longer resell their houses for a quick profit and mortgages were no longer affordable. The inability to pay up caused many people to default on their mortgages. The after effects were staggering and caused great losses to mortgage lenders such as banks. People were simply not able to pay back their mortgage loans. As time progressed

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