The current recession

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The current recession

Subprime mortgage crisis The s were the decade of subprime borrowers; no longer was this a segment left to fringe lenders. The relaxing of credit lending standards by investment banks and commercial banks drove this about-face.

Subprime did not become The current recession less risky; Wall Street just accepted this higher risk. However, as market power shifted from securitizers to originators and as intense competition from private securitizers undermined GSE power, mortgage standards declined and risky loans proliferated.

US subprime lending expanded dramatically — As well as easy credit conditions, there is evidence that competitive pressures contributed to an increase in the amount of subprime lending during the years preceding the crisis. Major US investment banks and GSEs such as Fannie Mae played an important role in The current recession expansion of lending, with GSEs eventually relaxing their standards to try to catch up with the private banks.

Wallison [60] stated his belief that the roots of the financial crisis can be traced directly and primarily to affordable housing policies initiated by the US Department of Housing and Urban Development HUD in the s and to massive risky loan purchases by government-sponsored entities Fannie Mae and Freddie Mac.

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On September 10,the House Financial Services Committee held a hearing at the urging of the administration to assess safety and soundness issues and to review a recent report by the Office of Federal Housing Enterprise Oversight OFHEO that had uncovered accounting discrepancies within the two entities.

The majority of these were prime loans. To other analysts the delay between CRA rule changes in and the explosion of subprime lending is not surprising, and does not exonerate the CRA. They contend that there were two, connected causes to the crisis: Both causes had to be in place before the crisis could take place.

In other words, bubbles in both markets developed even though only the residential market was affected by these potential causes.

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After researching the default of commercial loans during the financial crisis, Xudong An and Anthony B. Sanders reported in December Business journalist Kimberly Amadeo reported: Three years later, commercial real estate started feeling the effects.

Gierach, a real estate attorney and CPA, wrote: In other words, the borrowers did not cause the loans to go bad, it was the economy. This ratio rose to 4. This pool of money had roughly doubled in size from toyet the supply of relatively safe, income generating investments had not grown as fast. Investment banks on Wall Street answered this demand with products such as the mortgage-backed security and the collateralized debt obligation that were assigned safe ratings by the credit rating agencies.

By approximatelythe supply of mortgages originated at traditional lending standards had been exhausted, and continued strong demand began to drive down lending standards.

This essentially places cash payments from multiple mortgages or other debt obligations into a single pool from which specific securities draw in a specific sequence of priority. Those securities first in line received investment-grade ratings from rating agencies.

Securities with lower priority had lower credit ratings but theoretically a higher rate of return on the amount invested. Duringlenders began foreclosure proceedings on nearly 1.

The current recession

From tothe Federal Reserve lowered the federal funds rate target from 6. Additional downward pressure on interest rates was created by the high and rising US current account deficit, which peaked along with the housing bubble in Federal Reserve chairman Ben Bernanke explained how trade deficits required the US to borrow money from abroad, in the process bidding up bond prices and lowering interest rates.

The current recession

Financing these deficits required the country to borrow large sums from abroad, much of it from countries running trade surpluses.

These were mainly the emerging economies in Asia and oil-exporting nations. The balance of payments identity requires that a country such as the US running a current account deficit also have a capital account investment surplus of the same amount.

Hence large and growing amounts of foreign funds capital flowed into the US to finance its imports. All of this created demand for various types of financial assets, raising the prices of those assets while lowering interest rates.

Ben Bernanke has referred to this as a " saving glut ". Foreign governments supplied funds by purchasing Treasury bonds and thus avoided much of the direct effect of the crisis.

US households, on the other hand, used funds borrowed from foreigners to finance consumption or to bid up the prices of housing and financial assets.

Financial institutions invested foreign funds in mortgage-backed securities. The Fed then raised the Fed funds rate significantly between July and July Bymany lenders dropped the required FICO score tomaking it much easier to qualify for prime loans and making subprime lending a riskier business.

Proof of income and assets were de-emphasized. Loans moved from full documentation to low documentation to no documentation. One subprime mortgage product that gained wide acceptance was the no income, no job, no asset verification required NINJA mortgage.

Informally, these loans were aptly referred to as "liar loans" because they encouraged borrowers to be less than honest in the loan application process.The Wall Street Journal surveys a group of more than 60 economists on more than 10 major economic indicators on a monthly basis.

The Recession and Recovery in Perspective. The recession officially ended in June of (the second quarter). How bad was this recession, and how quickly is the economy recovering?

The Canadian economy is technically in a recession with two consecutive quarters of contracting GDP.

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However, the recession does not seem to be bothering most Canadian economists — or, for that. April Great Recession, great recovery? Trends from the Current Population Survey. This article uses data from the Current Population Survey to examine the state of the U.S.

labor market 10 years after the start of the Great Recession of – Current Population Survey (CPS) data, annual averages.

April Great Recession, great recovery? Trends from the Current Population Survey. This article uses data from the Current Population Survey to examine the state of the U.S. labor market 10 years after the start of the Great Recession of – April Great Recession, great recovery? Trends from the Current Population Survey. This article uses data from the Current Population Survey to examine the state of the U.S. labor market 10 years after the start of the Great Recession of – The Current Population Survey (CPS), sponsored jointly by the U.S. Census Bureau and the U.S. Bureau of Labor Statistics (BLS), is the primary source of .

A decline in the gross domestic product growth is a sign that a recession may be underway, but it's not the cause. GDP is only reported after the quarter is over. By the time GDP has turned negative, the recession may already be underway.

You want to identify the causes and signs of a recession.

State Of The Economy When The Next Recession Is Likely To Start | Seeking Alpha