You will prepare and submit a term paper on Financial Crisis in the United States. Your paper should be a minimum of 1750 words in length. There was a rise in the number of discarded mortgages which were viewed by customers as an additional burden, for the fact that they cost monthly payments that were higher than the net worth of the houses.
Before this phenomenon, came in to being, lenders enjoyed the honorable responsibility of customers repaying loans effectively. During this time, promises made by the customers to the lenders were never realized, with the customers opting to leave elsewhere, far away from their houses. Repayment of the loans would have had a negative impact on house owners, who would submit monthly installments towards payment of unprofitable ventures. The customers never minded the maintenance of their creditworthiness to their lenders. It was viewed as a venture that could lead to insolvency. Insurance companies plunged into high debt levels amounting to billions of dollars. There is no guarantee that shareholders will get the anticipated payments for their bonds and no more bonds are being offered by banks in the market since there is no one to buy them for fear of never getting paid for the ones they buy. This has led to a decrease in the working capital of banks since bonds are a major source of their capital. All this has led to the prevailing economic crisis in America.
The existence of a simple lending system caused an extravagant purchase of property by citizens. They could buy costly houses with loans, regardless of whether under the normal circumstances. they belonged to a class of such spending. The rules that existed then concerning land use made the owners of the land hike the prices due to the high demand that was prevailing in the market during this time. These two aspects really contributed to the financial crises in America. The high mortgage was mainly due to restrictions in land use in a number of urban markets as well as boundaries of metropolitan growth. They caused a rise in the price of houses to unexpected levels. A small rise in prices of homes was only experienced in the areas where the land regulation was not strict (Wendell Cox, page 16-21, 2008).
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