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The financial crisis is opened from the so-called sub prime mortgages or sub prime mortgages. The mechanism was explained here in two articles in July. In the first, July 18, a funny and serious explanation of the U.S. mortgage crisis , we present the translation of the work of Telegraph England. Subsequently, on July 21, returned to present a translation of the Telegraph but now in a show of slides, which greatly improved their reading. This thanks to the excellent service Slide share.

The crisis continued and deepened to the point that we know today. It is no longer just about sub prime mortgage crisis and its impact on the real estate business, but its impact on the overall financial system and insurance in the U.S.. That is, we talk about the bankruptcy of the fourth largest bank in the world, Lehman Brothers, and talked about the problems of AIG. The situation exploded a week ago and the Bush administration is calling on Congress to approve funds of $ 700.000 million, to address the problem. Funds in the amount of seven times the GDP of our country.

And to better understand what is happening is good to ask those who seem to know more about it. Professor Gregory Mankiw gives us a clue. The column found in Free ergonomics by Steven Levitt in The New York Times of yesterday, 23 September. But Levitt has no answer, but rather have questions:

As an economist, I am supposed to Have Something intelligent to say about the current Financial Crisis. To be honest, However, I have not got the foggiest idea What this all means. So I did what i always do When Something related to banking arises: I knocked on the doors of my colleagues Doug Diamond and Anil Kashyap, And for the answers Asked Them.

As an economist, it is assumed that I have some brilliant idea about the current financial crisis. But to be honest, I have no idea what it means. So I did what I always do on these issues. I knocked on the door to my colleagues Cougar Diamond and Anil Kashyap, and asked them the answers.

Every effect has a cause, and such is the case of the current financial crisis, for which they seek to blame without knowing that there are many causes of this problem.

This financial complication became a vicious circle , rather, in an amount of responsibility that starts with the authorities and financial regulators.

Here include Alan Greenspan, former Fed chairman, Wim Duisenberg, former president of the European Central Bank, Jean-Claude Trichet, now president since November 2003.

Thus the Federal Reserve took the initiative and from 2002 to 2004 kept interest rates below 2%, a trend that followed the ECB to June 2003 to December 2005 put it at 2 percent.

Banks
This in turn led to financial institutions began to grant loans that were acquired by the citizens (of all social levels) that due to economic confidence and low rates of interest that were handled were acquired without any fear.

Many of these could be called unaffordable mortgages or subprime, they were assigned to users who most likely could become delinquent customers. Read the rest of this entry »