The Roots and the Evolution of the America's Economical Crisis

At the present day almost every country in the world has been affected by the financial crisis in the United States. The United States is so politically, financially and culturally important, that if it is experiencing some troubles, those troubles often trickle down to the rest of the world. And that is what happened when the economical crisis began. In this article we are going to present a simplified version of the reasons why it happened like that and what the consequences are.

The beginnings:

For many people happiness is being sure that you can pay your bills, and live in your own home. That is why home ownership was made easy, as many people were given loans that were too big for them to cover. At the same time Freddy Mac and Fannie Mae were established to assist this process. These two companies were given some freedom and were managed independently from the government to increase operational efficiency.

The Cause:

However, the government did not stop with that. It forced banks to provide loans that were even riskier than those already allowed. This trend became know as sub-prime mortgaging. The interest rates of these mortgages became incredibly high. A sub-prime loan was a good package: a debtor gets a home, a lender gets high profit and invest money with the help of different investment companies and insurance companies. In such a way, these sub-prime loans were granted all over the country over just a couple of years.

The Growth:

Freddie Mac and Fannie Mae became two the most influential mortgage corporations in the world with the largest assets, holding half of the whole United States home mortgages. The companies had government financial guarantees and Senate and Congress Oversight committees. That made the rate of corruption shoot up, and caused a number of other problems.

The explosion:

Just a slight drop in the local housing market and the whole grand machine of mortgages, investments and insurance collapsed. This drop caused many homeowners to owe much more than their houses were worth. The pressure on home owners to make good on loans was increased and gave rise to a number of foreclosures. Fannie Mae and Freddie Mac went bankrupt and the economical crisis spread on other industries. The values of the investment packages dropped down at an alarming rate. This, in turn, seriously affected stock investment and retirement portfolios of almost each and every American citizen, and rocked the foundation of the global economy.