Why the Credit Crunch happened

In 2007, financial markets were abuzz with talk of a credit. It is unusual and unpredictable as some outside force such as the impact of an asteroid or a cold winter storm. However, it was not unexpected, and was not caused by any external force. The credit crunch began because borrowers have been unable to make payments on the loans they were given. When lenders began to lose money left to lend money: credit.

  If newFinancial globalization is the poster child for the housing bubble Gr.comer. New Century Financial was founded in 1995 and headquartered in Irvine, California. New Century Financial Corporation was a real estate investment trust (REIT), provided the first and second mortgage products to borrowers nationwide through its operating subsidiaries, New Century Mortgage Corporation and Home123 Corporation. The company was the second largest issuer of subprime loans by dollar value  in 2006. On April 2, 2007, the company filed for Chapter 11 bankruptcy protecticomplementos. The date of its financial implosion is seen as the day the bubble appeared. The death of New Century Financial has come to represent the death of the loans in bulk and the start of the credit crunch. Subprime lending was widely regarded as guilty of starting the cycle of tightening credit and a new century has been linked to this problema, but the scale and scope of the disaster was much larger than subprime.

  The huge credit facilitated the decline Lagrán housing bubble is a cash flow crisis of insolvency. Basically, people have no income to constantly mortgage payments. This was caused by a combination of exotic loan programs with the increase in payments, a deterioration of credit standards that allow debt-income well above the norms históricas and systematic practice of making the loan applications with the ghost of income (stated income or "liar" loans). The problem of cash flow insolvency is becoming more difficult as lending more money would not solve the problem. People need more income, not more debt burdens.

  The response of the Federal Reserve this mess was less than the cost of borrowing as much as possible. The federal funds rate sand reduced to zero, and the FED started buying long-term Treasury in a program known as quantitative easing. Unfortunately, following the interest rate does not force people to borrow or banks to lend. People have already taken too much, and some banks créditodigno credit to customers who were not already overburdened with debt. The credit can not be resolved with monetary policy. The only thing that would help people and it was timeLECE paying their heavy d