The Giant Pool of Money

Title : The Giant Pool of Money

The American crisis mainly began as a solution to cater for the borrowers who were a high risk and who had less history in the credit borrowing as well as low income levels . This made the system to be referred to as sub- prime . The mortgage payments were processed by the banks as securities , the bonds or even as debt obligations . This was in return sold to the financial institutions all over the world . This also increased the private sector participation in the mortgage financing market

because of the high demands achieved which were mainly motivated by the need for easy financing to the clients (Reinert , 2005

The incentives of the loan which assured clients that the terms were favorable and they would be able to finance the loan later was one of the reasons that led to the success of the debt obligations systems . In addition this was also motivated by the rapid increase of the housing prices . The problem however arose when the prices for the houses fell down and lenders began calling for their loans . This led to the loanees being affected mainly because they consisted of the low income earners and people at high risk (Reinert , 2005 . This therefore made many people to default on payment of the loan . This contributed to big losses to the lenders and the investors who had bought the mortgages from the debt obligation systems . Eventually , lending institutions were forced to reduce their rate of...