Sub prime crisis

While posting my last article on depreciated real estate marketing in US. I was able to observe a particular term named “sub-prime crisis”. I had seen this term headlining our news for the past two months but was not able to figure it out. So I inquired my father and some more sites, which had posted details about it.

During the end of the year of 2005, the real estate marketing in US attained its peak and the citizens had a craze on real property and on investments in stock, expecting huge returns from their investments. The Americans borrowed heavily from the banks and the banks too did not hesitate to provide loans to those who do not even, satisfy basic eligibility criteria, in terms of their capacity to repay. These borrowers who were poorly equipped to repay the disproportionate loans taken in comparison to their earnings, were technically called ‘Sub-prime’ borrowers.

The situation then turned to be still tense when the US banks hiked their interest rates in later 2006 and due to hiked interest, the borrowers were unable to pay the interests and the capital borrowed. Due to failure by the borrowers to service the interest and the capital borrowed, the banks began to seize the assets, which were offered as security at the time of getting loans.

This onslaught by banks let to a situation called the ‘liquidity crisis. To meet the repayment commitments, the borrowers sold their assets. Due to these spate liquidations, the real estate marketing and the NASDAQ & DOW JONES (capital and industrial indies) got depreciated its value to a greater level. Nearly 2 million people lost their home and the total economy faced a serious financial crisis. Three banks namely LEHMANN BROTHERS, JP MORGAN STANLEY & AIG incurred heavy revenue and capital loss and was in a situation to even get closed. Thanks to the US senators who had passed the bail out plan of $ 700 billions, which is the highest in the history of world economy.

This crisis had affected the total global economy. The banks and insurance companies, which had tie up with those banks are in the verge of closure. The exporting countries also faced a serious economic problem due to the problems in the importing countries. Millions are losing their jobs around the world due to this crisis.