2/kloc-0 At the beginning of the century, the American real estate market continued to rise, and people with poor borrowers' credit could also get loans. Financial institutions lend money to those who are unable to repay their loans, and then make these mortgage-backed securities into financial derivatives and package them for sale to investors and other financial institutions.

Rating agencies irresponsibly rated these bonds as AAA, and buyers thought that they could avoid risks through credit default swaps and other means. In the case that bonds are packaged and resold layer by layer, the institutions in the chain underestimate the risk.

When American house prices began to fall, a large number of subprime loans defaulted, and those mortgage-backed securities lost most of their value. As a result, the capital of many financial institutions fell sharply, Lehman Brothers went bankrupt, and American International Group was on the verge of bankruptcy, which led to a worldwide credit crunch.

Extended data:

economic impact

The bursting of the real estate bubble will continue to hinder the growth of production. The bigger question is, what impact will the factors that affect the double-digit decline in house prices have on the United States, because American consumers borrowed heavily at the peak of the real estate bubble. Optimists get some comfort from the rebound in consumer spending, but this may be a mistake.

The double-digit decline in house prices will make more and more mortgage borrowers fall into financial difficulties. Other consumer debts have already gone wrong. For example, the credit card default rate is rising, and lending institutions are likely to face a more difficult situation. As homeowners feel poorer and poorer, consumer spending is bound to be curbed, especially when the stock market continues to fall.

Even if the direct financial contagion is controlled, the subprime mortgage crisis in the United States may produce psychological contagion, especially the revaluation of housing prices. Although the scale of reckless lending to high-risk borrowers in the United States is larger than that in other parts of the world, house price inflation has been more serious than that in the United States, and countries such as Britain and Spain are more vulnerable to the bursting of the house price bubble.

In addition, The Economist also pointed out that the ability of the global economy to resist the weakness of the US economy should not be exaggerated. Although the current account deficit in the United States has been declining, it still accounts for about 6% of GDP. Because Americans consume far more products than they produce, Americans are still one of the biggest sources of demand in other parts of the world, and their sharp decline in demand will inevitably damage the economies of other regions.

References:

Baidu encyclopedia-American subprime mortgage crisis