e in the world need to consume to survive. Nevertheless the American Dream leads one to believe that he has the freedom to consume anything he wants, whenever he wants, even if the product will serve no specific purpose. This may be used as an explanation of why people were not scared to buy things that they could not afford in the US.
Causes 原因
The present economic crisis finds its roots in the American credit market, and is also often referred to as the “subprime crisis”. In order to understand the roots and connect them to the present we need to understand what the word “subprime” means. The subprime crisis primarily refers to the problems in America's subprime mortgage market, which consists of loans to individuals with weak credit histories (which often leads to a higher risk of default).
In other words, subprime loans were regarded as risky credits that were given by the banks to clients without any reliable evidence that those clients were able to pay them back. There were two institutions that played the crucial part in this process: the Federal National Mortgage Association and Federal Home Loan Mortgage Corporation, or simply Fannie Mae and Freddie Mac.
Fannie Mae was established in 1938 in order to help families with low-incomes in getting a loan and then 30 years later the Congress decided to privatize it. Two years after that, as a competition to Fannie Mae, the U.S. government established Freddie Mac. Over the years, under a pressure of different governments, those two institutions started to give all kinds of different credits to less and less credible borrowers, i.e. with lower credit rating.
First Problem: Politics 第一个问题：政治
However, nothing was even close to the pressure of the Bill Clinton's administration. In that time, the whole world was characterized with improvement and development. Nevertheless, something had to be done concerning the social injustice as the social differences were considered huge and hardly bearable. Hispanic and Afro-American people were still behind other Caucasian Americans concerning the number of real properties. Ultimately, Clinton's administration forced Fannie Mae and Freddie Mac on giving even more subprime credits. However, it cannot be said that Clinton's administration purposely pushed low-income families to this no-way-out situation.
Second Problem: The Housing Bubble 第二个问题：住房泡沫
A term that is often used in the connection to the crisis is the “housing bubble”. What this refers to is the rapid increase of the prices of houses. It is a run-up in housing prices fueled by demand, speculation and the belief that recent history is an infallible forecast of the future. Housing bubbles usually start with an increase in demand (a shift to the right in the demand curve), in the face of limited supply which takes a relatively long period of time to replenish and increase. Speculators enter the market, believing that profits can be made through short-term buying and selling. This further drives demand. At some point, demand decreases (a shift to the left in the demand curve), or stagnates at the same time supply increases, resulting in a sharp drop in prices - and the bubble bursts.
This increase in prices can be seen on the diagram below:
Diagram 1 - The Housing Bubble
Housing bubble can have a tendency to happen in all housing markets worldwide. When they have fully grown, it is very likel
