computer addiction

computer addiction

  • Submitted By: aaf9999-.
  • Date Submitted: 11/27/2014 3:17 PM
  • Category: English
  • Words: 4420
  • Page: 18

The immediate or proximate cause of the crisis in 2008 was the failure or risk of failure at major financial institutions globally, starting with the rescue of investment bank Bear Stearns in March 2008 and the failure of Lehman Brothers in September 2008. Many of these institutions had invested in risky securities that lost much or all of their value when U.S. and European housing bubbles began to deflate during the 2007-2009 period, depending on the country. Further, many institutions had become dependent on short-term (overnight) funding markets subject to disruption.[7][8]

The origin of these housing bubbles involves two major factors: 1) Low interest rates in the U.S. and Europe following the 2000-2001 U.S. recession; and 2) Significant growth in savings available from developing nations due to ongoing trade imbalances.[9] These factors drove a large increase in demand for high-yield investments. Large investment banks connected the housing markets to this large supply of savings via innovative new securities, fueling housing bubbles in the U.S. and Europe.[10]

Many institutions lowered credit standards to continue feeding the global demand for mortgage securities, generating huge profits which its investors shared. They also shared the risk. When the bubbles developed, household debt levels rose sharply after the year 2000 globally. Households became dependent on being able to refinance their mortgages. Further, U.S. households often had adjustable rate mortgages, which had lower initial interest rates and payments that later rose. When global credit markets essentially stopped funding mortgage-related investments in the 2007-2008 period, U.S. homeowners were no longer able to refinance and defaulted in record numbers, leading to the collapse of securities backed by these mortgages that now pervaded the system.[10][11]

The failure rates of subprime mortgages were the first symptom of a credit boom tuned to bust and of a real estate shock. But large...

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