Role Played by Real Estate and Mortgages to Plunge the World Into a Financial Crisis

As such, in understanding the various financial crises that have occurred in the past, more specifically the recent one in 2007-2008, one should always have a geographical as well as some historical knowledge to bear. The global financial crisis is an opportunity to study the causes as well as methods that would lead to an aversion to these situations in future. The paper will mainly look at the issue geographies concerned with the credit crunch and the crisis of mortgages. The paper will focus on the different countries, cities as well as financial centers in an effort to get deeper knowledge of the role of mortgages and real estates in setting off the global financial crisis. In many parts of the globe, Investors had made some investments on the residential mortgages that have backed securities but later, have seen their values drop.

Although humans can be said to be rational, in this system, humans cannot be said to necessarily rational. Besides the stock markets, hedge funds, mortgages, auctions as well as the entire financial market, they are mainly conditioned by the specific actions or decisions that the humans make on these aspects of the financial system. Central to these decisions or actions is information. Hence, depending upon on too little knowledge can be said to be ignorant, while having too much information without sharing it can be said to be a form of informational cascades. On the other hand, using this information selectively in the process of making decisions may lead to polarization. The main reason for this is that most of the lenders are usually national, who want to strive for the same available credit in the world’s perspective.

Before the 1980s global financial crisis, lenders usually granted their loans according to the savings. It can be said that the savings, as well as the loans, were mainly made in their local markets. The main concern raised was whether the jousting markets in their local markets would bust. Connecting the various local markets in the vicinity was seen as the best method of averting these risks. Such was not only witnessed because many of the people that had the mortgages that were given to them without some sort of down payment, but was also contributed by the fact that many of home mortgages that were backed by securities were at this point, sold with the main intention of making the highest return. The anticipated high returns were partially based on the interest rates that were high at the time and not only the value of the residential homes and also partially based on assumptions.

Such meant that the values of the home mortgages that were backed by securities were exaggerated. It meant that the risks were underplayed, and the returns got overvalued. Securitization was already in the U. The result was the formation of a series of an increase in the appetite of the home mortgages that were backed by the securities. The crisis in the savings and loans institutes led to a series of events. Furthermore, the securitization as well as the entry of the lenders that were non-banks, coupled by the increase in the demand for the investments that were low risks, contributed a lot in shaping the globalization of the market of mortgages (Dymski, 1999, p. Predatory Lending Foreclosures do not necessarily represent a crisis but also by the defaults in the mortgages given.

These are majorly the symptoms of the advent of such a crisis. Most of these subprimes, as well as the predatory or enticing loans, are usually given to those who are required to refinance their loans and mortgages or as a form of a second mortgage. These loans do not at all enable the loaned people to get homeownership, especially those from the low income or those that are from the minority communities. These are the people who live houses that have declining house values (Hernandez, 2009, p. The situation is mainly evidenced by the way the African Americans can receive about twice as much level of the loans that are high-priced than the white’s loans (Schloemer et al. p. To a large extent, the form of geographical, financial exclusion is being reproduced by the form such as geographical predatory lending as well as the act overinclusion.

Therefore, the acts of predatory lending in these areas have transformed them into some form of capital extraction regions (Wyly et al. p. Those who are practicing predatory lending are mainly making profits by the act of stripping wealth as well as equity from the homeowners. These homeowners can be said to channel wealth in the regions or countries that can be said to be undeserving of the loans; which is mainly done through the disguise of ‘loans for the high-cost refinance’ (Taylor et al. Such slowly leads to the advent of a financial crisis as the spillover effects affect major parts of the neighboring communities as well as slowly finding its way on the international level. Conclusion As seen from the paper, the financial disaster is not only local but can spread to a global scale.

While the impacts of the financial crisis may be global, their extent varies from continents as well as individual countries. The faltering economy, the housing bubbles as well as regulation all have helped in shaping the politics and regions affected across the world. The cases of predatory lending as well as foreclosures have highly influenced the countries as well as communities that can be said to be low-income earners than others in many parts of the world. Brevoort K. P. and Canner G. B. The 2006 HMDA data Federal Reserve Bulletin 93 73–109. San Francisco, CA, p. Dymski G A. The bank merger wave: the economic causes and social consequences of financial consolidation Sharpe, Armonk, NY, p. Goldstein I. The economic consequences of predatory lending: a Philadelphia case study in Squires G D ed Why the poor pay more.

Lardner J (2008). Beyond the mortgage meltdown: addressing the current crisis, avoiding a future catastrophe Demos, Washington DC, p. Leger, L. and Leone, V. Changes in the risk structure of stock return: Consumer Confidence and the dotcom bubble. Losing ground: foreclosures in the subprime market and their cost to homeowners Center for Responsible Lending, Washington DC, p. Smith G. Foreclosures in the Chicago region continue to grow at an alarming rate Woodstock Institute, Chicago, p. Taylor J, Silver J. and Berenbaum D.