Many people are asking the question “What caused our current financial crisis?”. The answer, however, is not so simple. Various scholars and economists have blamed it countless different things, American consumer and government spending, lack of digression within banks on who they were giving mortgage loans to, over confidence in the housing market, etc. However, is it not possible that all of this combined contributed to the meltdown that led to the current financial crisis?
American consumption and government spending is an issue. At some point something must change. There will always be deficits and surpluses throughout the world; however, having an extremely large deficit or surplus for two long becomes unhealthy. Balance of trade is ideal and the side effects of America’s constant and long standing deficit very easily could have played a factor.
Lack of digression within the banking world is also an issue to be addressed and clearly has been in the last months. The amount of subprime mortgage loans originating around and after 2003 was much greater than before this time period. This means that often people who would not have been able to receive loans before were now receiving mortgage loans. It is easy to see how this could be a problem when so much credit is being given out to people who have bad credit ratings for a reason.
The housing market bubble was expected by economic analysits and totally blown off by others. Prices were constantly rising since the mid 1980’s and into the 1990’s this line began to become steeper. Housing prices could not continue to rise forever and it seemed that no one knew when it would fall and then all of the sudden they fell too much and too hard.
All of these factors combined contributed to the economic crisis which began in 2007. One is not separate from the other. When you add them all together more and more becomes wrong and leads to a greater problem. Many want to blame one specific thing. However, this is impossible, because in the end all of these come together.