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United States Economic Policy Memorandum

Current Assessment : The United States is in what can best be characterized as a deep recession . The collapse of the real estate market , and the ripple effect it has had throughout the financial system caused a drastic adjustment of the stock market , a wave of layoffs and credit restrictions have driven the economy to a standstill Unemployment claims are high and remain steady , several banks and other institutions have gone out of business , and thousands of Americans have lost a significant portion of their retirement portfolios p

The ripple effect was caused primarily by the questionable lending practices of mortgage companies , who began endorsing sub-prime mortgages in the early 1990s . Sub-prime mortgages are higher-risk loans for property that balance the risk of default with high interest rates . In to make the buy-in ' for these mortgages attractive and affordable , they the lenders would offer a temporarily low interest rate that would increase significantly after a short period of time . This caused mortgage payment rates to suddenly jump , causing many defaults and foreclosures . The abundance of foreclosed housing stalled the market for new homes and mortgages , as well as the market for house-building materials and professions . Additionally , the abundance of supply in the market drove down the value of homes whose owners were in good standing causing those home owners to lose their investments

The real estate bubble bursting may not have been enough on its own to trigger the total collapse , but the problem was compounded...