2007 US Foreclosure Crisis Essay

The 2007 U.S. mortgage crisis, later evolved into the more infamously known, 2008 housing crisis, was an economic collapse triggered by defaulted loans and mortgages in the U.S. However, it is seldom known that the effects of the U.S. mortgage crisis affected far more than just the U.S. Due to foreign dependence on U.S. securities, and the decreased capital-flow abroad, the mortgage crisis escalated into a global recession from as far as East Asia, to the relatively close U.K. This crisis was not created by one single thing, much like most other events of this scale, but created by a deadly combination of faulty government oversight, financial fraud, and the misuse of mortgage-backed securities (MBS). Sub-prime loans, which when combined with the rest, proved to be the final push for the collapse of the U.S. housing industry. Former President Bill Clinton, is one of the people responsible for the crisis, because of his deregulation surrounding the housing market, and most importantly, the rewriting of the Community Reinvestment Act. This law pressured banks into lending to low-income neighborhoods, which resulted in the further expansion of the sub-prime loan market. Also, responsible, is former President George W. Bush Jr., who advocated and enacted deregulation which caused agencies such as the Securities Exchange Commission (SEC) to massively

This was because during the mortgage crisis, S&P purposefully rated investment vehicles such as Collateralized Debt Obligations (CDO), and other MBS based securities, higher ratings than they should have been. This resulted in banks being able to sell riskier and riskier securities at prices of investments that were supposedly deemed safe (BBB- or higher), because if a security is rated as a risky investment then the price is lowered or the yield is higher to reflect the possibility of a