ABSTRACT
The financial crises of recent decades – the global subprime crisis, the Asian financial crisis and the Eurozone debt crisis – led to an economic downturn in some cities and countries. The recent subprime financial crisis during 2007–2009 was considered by many economists to be the worst financial crisis since the first global financial crisis – the Great Depression in the 1930s. The financial turmoil was dubbed by most of the economists as a “subprime” financial crisis as its main cause was the subprime mortgage market in the US. Greedy bankers lent too much money to homebuyers who should not have been able to borrow. The formation of the housing bubble in the US and the blooming of the subprime mortgage market were closely intertwined to breed the recent financial crisis gradually. Moreover, the Federal Reserve lowered its target federal funds rate progressively to 1% in 2003 after the stock market peaked in 2000. The low interest rates motivated investors to look for high yield investments. Collateralized debt obligations, backed by subprime mortgages, offered good investment opportunities to investors. They appeared to be safe investments since borrowers in financial distress could refinance the property to repay the mortgage debt (Li 2012).
