Obamas economic strategy is highly anticipated to solve some of the recently arising crisis in the United States of America. The Americans have received the strategy with a lot of hopes that it will rescue them from the collapse of the United States economy. One of the issues causing a lot of threat to the American economy is the financial crisis. This problem has gained much strength in the year 2007 in America and has spilled over its effect to the rest of other economies of the world.
The financial crisis in United States has been as a result of subprime mortgage crisis. In his economic strategy, Obama has voted in for some acts to handle the issue. He voted in the Emergency Economic Stabilization Act of 2008, to deal with fraud cases from real estate brokers and mortgage brokers. Obama has also introduced the Stop Fraud Act, so as to increase mortgage fraud penalties (Sherraden, 2005, pp. 45). The causes to the financial crisis in United States are attributed to several factors.
These factors are pervasive to both credit and housing market and have been there for several years. Some of the causes are: the lenders or borrowers poor judgment, homeowners
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Additionally, it has been caused by mortgage default and regulations of the government. The financial crisis is still an ongoing issue in United States. The issue has stimulated dramatic increase in foreclosures and mortgage delinquencies in America, with major serious effects on financial market and banks around the world. Despite the existence of the financial crisis some decades back, this has became more apparent by the year 2007. It has led to weakening of financial system worldwide and also the regulations for the financial industry.
Many recently issued mortgages in United States of America are subprime, implying that less or no down payment that was done, were offered to low assets and income households, and also with troubled histories of credit. The decline of the prices of houses in United States in 2006 to 2007, led to soaring of mortgage delinquencies. This also resulted to loss of value by the securities backed with subprime mortgages, which were widely under hold of firms of finance.
The banks in America has really lost their capital, while the government sponsored enterprises around the world has tightened their credit (Sherraden, 2005, pp. 47). The financial crisis in America began as a result of United States housing bubble, which was accompanied by high rates default on adjustable rate mortgage and subprime. It is the competitive pressure and the government policies for many years before the financial crisis that contributed to higher risk lending practices.
In addition, the increased incentives for the loans such as the long term and easy initial term trend of increasing the prices of houses made the borrower to have the assumption that it will be easy for them to refinance the loans quickly at terms that were more favorable. However, the moment when the rates of interests started to increase and the prices of houses began to go down moderately in most parts of United States in the year 2007, the borrowers had difficulties to refinance their loans.
Foreclosure and defaults activity dramatically increased, as there was expiry of the initial terms. The prices of homes failed to increase as they were expected and the rates of interests reset higher. The mortgage backed securities in the financial product which get their value from payments of mortgages and prices of the houses, gave the financial institutions the ability and the world investors to invest in United States of America housing market.