How Has the Crisis Spread

The boom on stock market after the Iraq war caused the chaos every one was buying and selling with higher risk than before, being less worried about the losses. The lowest interest rate since over 40 years which was equal to 1% generated a great demand for real estate. Almost 40% of borrowers in 2005-06  were people who weren't trustworthy, with no credit abilities. When the boom for real investment slowed down the prices of houses simultaneously went down as well. The rise of interest rates caused a lot of problems to Borrowers, paying back every time the higher rate plus principal was bringing great tention. The first interest rate rise accrued in June 2004 of 0,25%, but no one took it seriously. In 2005 there were 8 rises of interes rate, in June 2006 after 17 rises the velue of the interest rate reached 5,25%. In the result people couldn't balance the maintenance of the house plus leaving expenses with their revenues. The owners of houses started to sale them but on lower prices. The market values fell below the the level of mortgage loan outstandings. People couldn't pay back loans any more so the banks had to make huge provisions. In some extreme cases people were burning their houses to get back at least their insurance. In April 2007 one of the biggest subprime bank loaners went bankrupt ( nEw Century Financial). One of the biggest banks - Northern Rock in Uk almost went bankrupt.  Also the subprime loans we repacked by the financial institutions and sold to worldwide investors. They started to be worried because they bought the packages with lorisk rate ( AA and above ). Those investors first started to sale the packages but later were demanding the credit insurance ( Credit Life Insurance, companies insured their credits) the insurance companies had to pay to the house owners and to package holders. They reached the point where the crisis also spread among the insurance sector. The Crisis spread resulted in US$ currency fall and anxiety all over the world. Many of investors were from Europe and now within the countries they trie to block the crisis spread, even by rising interest rates in their own countries and drawing conclusions form USA mistakes. SUmming up lower economic growth in US is going to affect Europe and other continents in all ares of life, export and import between US and Europe slowed down because of the currency rates, and stable prices in Europe. The problem is now not only an economic problem but also got into politics world, with the president elections in the corner.