In the 1960s and 1970s, the economies of western countries entered a strange cycle of stagflation. In order to get rid of the predicament, Reagan pursued a loose monetary policy after taking office, advocated free market economism, and believed that human intervention in the economy was a shackle that hindered economic development. In this low interest rate and relaxed environment, the American economy began a big upward cycle in the 1980s. The lack of artificial supervision of the market is one of the reasons for the outbreak of this crisis.
The low interest rate environment during this period stimulated the sustained and long-term rise of house prices, giving people the illusion that house prices will never fall. Many financial institutions are encouraged by seemingly never-falling housing prices, and their greed for profits has prompted them to start lending to low-income groups to help them buy houses. The classification of loans in the United States is different from that in China. China has a five-level system, and each level represents loans with different risks. In the United States, subprime loans are a kind of high-risk loans. Low-income groups only need to pay down 10% of the house price, and the remaining 90% can use the house as collateral to borrow money from the bank. Such a low down payment is an exaggeration. 10%! It means that as long as the house price falls by more than 10%, the bank loan may not be recovered. Of course, such a large-scale loan will stimulate the rise of housing prices, which in turn will stimulate a larger loan, which will continue to circulate and become bigger and bigger. Under the premise of rising house prices, the danger has never been exposed.
Of course, banks also know that the risks are great. They are all experts, and they are not stupid. They raise money by issuing bonds to the whole world through the financial market. Although these bonds are risky, Wall Street packages these junk bonds into high-quality bonds by underwriting them by some insurance companies. Since it is a high-quality bond, especially in the context of rising house prices, the yield of bonds is also very high, so a large number of financial institutions, companies and even the government have bought such bonds. Finally, even the investment companies that issued bonds for banks couldn't help buying a lot (remember the joke that the young man who came to heaven after his death shouted: oil was found in hell, and everyone went to hell. Finally, does the young man believe that there is oil in hell? As these bonds are high-quality bonds and assets, a large number of financial derivatives are generated around these bonds and stocks. These derivatives are too complicated for me to understand. In this way, the risk of subprime mortgage has spread all over the world, laying the groundwork for the global subprime mortgage crisis. America is really a creative country, so creative that it finally created itself into a hell. At that time, the American government's worship of free economy made them lack supervision over the creation of Wall Street, and let those greedy guys run amok.
We observe the production process of these financial products and clearly see that these financial derivatives are based on the continuous rise of housing prices. Once the house price falls, the whole building collapses. It's like a big bag of beans with a hole in the bottom. Because the beans were pressed too tightly, the beans were squeezed into the hole and could not flow out. If the beans fall off one day, the whole bag of beans will splash out.
One day, American house prices really fell 10% or more. Many low-income people, especially those who speculate in real estate, will not repay their loans immediately, and these bonds will immediately become garbage, so insurance companies have to compensate the owners for their losses. The holders of these products returned to the pre-liberation period overnight, all financial derivatives became worthless, and people related to sub-prime loans all over the world suffered heavy losses. Because the financial industry in western countries occupies an important position in their national economy, unlike the small financial market in China, the financial crisis quickly spread to the real economy, thus evolving into a global economic crisis.
This crisis is the product of American low interest rate and liberal policy for more than 20 years, which means the end of an era. Of course, when it comes to the most fundamental reason, the economic crisis is just the product of dark psychology such as greed, jealousy, selfishness and arrogance in human heart. Unless man changes his mind, the economic crisis will never be avoided.
Off-topic, now the whole world is optimistic about the development of China, and China people are full of confidence. If nothing unexpected happens, the next economic crisis will break out in China, and we will wait and see.
Simply put, this is how the subprime mortgage crisis came into being. I feel that his essence is still the real estate crisis. Many people may disagree with this view. Consider it a family statement.