Subprime Mortgage and Financial Crisis

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A major financial crisis that has reached to nations all around showed warning signs in 2007. Building up since the around the turn of the century, fundamental weaknesses in US and global financial systems became more apparent with the subprime mortgage crisis in the United States.

Subprime mortgages are made with little or no down payments on households with low incomes and assets poor credit backgrounds. The housing market had peaked in 2006 with the peak of the Physical Cycle, but the subsequent decline in real estate values left some home owners with mortgages that exceed the value of their homes. Some home owners were unable to maintain their payments while others chose to abandon what looked like increasingly unprofitable obligations. Consequently, mortgage delinquencies and failures escalated to record rates.

Lending institutions that relied on these mortgage payments soon found their assets were falling short of their liabilities. Worse still, mortgages are often grouped together as asset packages known as mortgage backed securities that are sold to other financial institutions. Institutions that invested in these securities saw a decline in their capital so they tightened credit which led furthered a recession.

By September, 2008, many banks, insurance firms and mortgage banks in the United States either failed or merged into other institutions to survive. European bank failures and declines followed which brought down the value of stocks and commodities. This led to liquidity problems in that the buying and selling of assets with declining values became unsafe, and this made it harder for institutions to meet their obligations. Difficulty followed as prospects for making a profit on borrowed funds declined and this furthered the reduced liquidity.

A crisis in confidence led investors to transfer their capital from emerging and weakened economies into stronger currencies, like the yen, the dollar and the Swiss franc. This left investment vacuums around the world and brought pleas for help the International Monetary Fund from impacted nations. Each weakness in the economic chain led to another to bring about a global economic crisis. [1. Source: / 'Subprime mortgage crisis']

World Cycles are at play in the worldwide financial collapse that is not only affecting the United States, but countries around the world as well. These are the Megarhythms of world change that currently have two Cycles in the phase of transitional crisis at the same time.