The housing crisis in the U.S Coursework Example | Topics and Well Written Essays - 1500 words

The housing crisis in the U.S - Coursework Example The current economic malaise in US constitutes an intertwined cobweb of factors hat have triggered a downturn in various economic dimensions and dynamics, on national and international scales. The crisis can be blamed on various factors characterizing the last 20 years period. The medium to short term triggers of the crisis can be traced back to 2005 when house prices surged and started dropping in late 2006.The crisis has burst the housing bubble which has even aggravated the current economic situation in the US which according to economists is already tantamount to a recession. The peak of the crisis heightened particularly remarkably in August 2008 with the U.S treasury declaring the collapsing housing financial system as the highly significant threat to the US economy.The raised foreclosure rates in the 2006-2007 period by US homeowners has resulted in a sub prime, mortgage, hedge and various fiscus dimensions even beyond the housing loaning systems. Many economic analyses have b een misguided in their attempt to break down and unravel the cobweb of factors leading to the build up of the economic and housing crisis held as most phenomenal after the great Depression in the 1970s in the US. Many analysts have attributed the collapse of the global financial system to the destabilisation of the mortgage and housing crisis. Salient provenances of the housing crisis which is inalienable from the economic crisis enlists in its core the lack of feasible and clairvoyant regulatory framework for the moderation and stabilisation as well as sustenance of the financial institutions in the US. The ramifications and ripples of the US economic crisis have swept across global landscapes owing to the long criticized financial system devised after the World wars in which the US economy is the heartbeat of global economic paradigm leaving the entire world susceptible to upheavals rocking the US economy. Root causes Steve Latter (2008) has listed the following as the top six causes of the financial crisis in their perceived order of significance. Although the first three are not directly related to the mortgage and housing paradigms the exploration of the housing or mortgage crisis in the US and in the state of Virginia particularly can not be intact without the streamlining of all variables of the multifaceted problem into perspective. 1. Indefinite and inaccurate regulatory edict which permitted financial firms to move to too high ratios of mortgage-backed securities to collateral debt. 2. The lack of substantial focuses on the banking and financial firms' ratio of assets to debt by banking and financial services company regulators. 3. New accounting regulations crafted Sarbanes Oxley (regulation passed after Enron) were too traditionalist resultantly leading to the undervaluation of assets like mortgage- securities. This in turn caused bank debtors to leverage on the bank. 4. Private companies and their leadership made lending decisions out of greed whilst also flouting money lending standards. This was done in the aims of pulling more interest returns by lending to clients who were in Latter's terms "very risky bets". 5. Consumers borrowed what was more that they could afford. The blame on this aspect can be applied on both the borrowers and the lenders although lenders are overly expected to be firm to principle and economic logic when making lending decisions. 6. Miscalculated financial law promulgations which for instance compelled financial institutions like Fannie Mae to avail more loans to lower income clients which amounted high risk money lending. The unraveling US housing financial system has seen the filing for bankruptcy by various mortgage firms like American Home Mortgage (AHM) which is ranked as the US 10th biggest home loan firm.