Every one hearing this word frequently...but what is actually sub prime crisis?? why it effected all over the world...one thing I can surely tell that it happens because of US only, but suffered all over the world. American government also responsible for this,,they reduced interests rates to 3 percent,, so every sees this is a big opportunity to get a home very cheaply..Next blamable people are Investment bankers quick buck earnings...The process is as follows..
First The small banks are given home loans to many people..but these loans are bought by large Financial Investment banks for more interests rates. These loans are divided into parts and issued public offer through share market. People thought that real estate rates are soaring day by day,, if they bought these shares they will get more profits.. as usual demand is more share values rise very high..so these financial banks got more profits, these people pressurized small banks to give more house loans so that they can buy all these. Small banks thought that any how they will get more interest rates from large Investment banks, so they decided to give more home loans even though the people don't have the security. So, every one knows that how these job less people pay their EMIs ... they didn't.so the demand for the real estate fallen down.. rates are very low that time. suppose if the loan value is 2lac dollars the current price of home is 1.5 lac dollars,, who will pay the EMIs.. they asked the banks to take their flats.. no one ready to buy, no one ready to pay EMIs.. so banks got losses..
This has happened in US... because of unregulated financial policies,,, at least world must learn a lesson from this and not to depend much on dollar.. make sure the alternate currency also for international trading.
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