However, the case study, “the U.S. Sub-Prime Financial Crisis So Different” suggests that the run up in U.S. equity and housing prices was clearly not a period of boom but it was the justification of financial innovation that caused the sub-prime mortgage crisis. As a result, there was an increase in U.S. productivity due to a flexible U.S. economy, capital inflows and technological progress that enhanced the stability of our economy.
Financial innovation did not let the market make its mark but created loopholes in the financial sector. We all know the saying “what goes up, must come down” and that happened when the periods of increase in the housing prices was followed by a period of drastic decline. Now that the housing prices are falling, this has led to higher default risks and rates and has affected the less credit-worthy borrowers who received the sub-prime mortgages. They were hoping that the housing prices would continue to rise but since it is falling, refinancing is extremely difficult and they are unable to make payments on a... [continues]
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(2008, 10). Sub-Prime Financial Crisis. StudyMode.com. Retrieved 10, 2008, from http://www.studymode.com/essays/Sub-Prime-Financial-Crisis-174326.html
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"Sub-Prime Financial Crisis." StudyMode.com. 10, 2008. Accessed 10, 2008. http://www.studymode.com/essays/Sub-Prime-Financial-Crisis-174326.html.