Question by nothing: What caused the US to go into a recession?
Why do we have a recession in the US right now?
Thanks for all answers in advance!
Question #81
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Best answer:
Answer by jason d
It started from the sub-prime lending. Basically countrywide and other large lenders were giving out mortgages to anyone that was applying for them. To transfer this risk on the buyer they often had adjustable rates built into them. As often happens after a couple years as interest rates rise so do the payments. Many of these households began defaulting on the loans. This was exascerbated since the companies like countrywide package mortgages up and sell them off in a process called securitization where they are supposed to classify them into tranches which are good/fair/poor quality. Well instead of classifying these correctly they lumped them all together. When large wallstreet firms like merrill lynch buy these securities and sell them to mutual funds investing in fixed income (like mortgages and bonds) these funds were buying poor quality misleading securities. As more people began defaulting on their loans a lot of people flee from the market to protect the equity they have left. This is exactly opposite what they should do, but investor psychology often gives way to these wild swings. So the government will continue to lower interest rates which will in turn get more people and more importantly businesses borrowing as it becomes a cheaper and cheaper source of financing to businesses. This in turn (theoretically) will lead to cheaper goods for consumers and ultimately get us spending more. Everything in economics is cyclicle.
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