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Financial Crisis

Mateo Salazar The source of the financial crisis stretch back to another number of reason, however the main bust was in 2000 in the U.S. when the Federal Reserve decided to lower the interest rates to limit the economic damage. Therefore when they lowered the interest rates, they made mortgage payments cheaper, so the demand of homes in the United States become bigger, sending prices up so people began taking benefit from the situation causing the quality of the mortgage to decrease and as well asking for more loans. As a result of this banks began to give more and more loans to people who couldn’t pay resulting in a meltdown in the financial system. As a number of investments in mortgage related went bad, the banks that in one occasion ruled, now find themselves in a critical situation forcing themselves to be reinvented, as well as the nations biggest insurance, savings and loans company’s. Leaving them with no options but to declare themselves bankrupt or to be bought by bigger banks or governments. In response of this “credit crunch” the federal government suggested a 700 billion bail out plan which would allow the government to buy “toxic assets” form the U.S. biggest banks and in that way allow them to provide support and fix up the balance sheet plus reassure the market along with some credit flow in the financial system of the United States. References http://topics.nytimes.com/top/reference/timestopics/subjects/c/credit_crisis/index.html?8qa&p=1-spot&sq=credit+crisis&st=nyt http://www.brookings.edu/opinions/2008/1028_financial_crisis_rhee.aspx http://www.kypost.com/mostpopular/story.aspx?content_id=fbb5ac95-bcd1-4493-bab6-b3cf58a19377