Impact of Subprime Mortgage

Impact of subprime mortgage financial crisis:

Since the sub-prime mortgage financial crisis happened, many countries all around the world have been affected economically. One of the biggest economic giant of the world (US) have lost more than quarter of their net worth from that crisis. The global economic and financial crisis had been felt more sharply by the most vulnerable social groups whereby, the crisis had ripple through both the macroeconomic and microeconomic levels. (United Nations, 2009)

1. Financial contagion and external borrowing:

During the financial crisis Americans as stated earlier has lost more the quarter of their net worth, their stock index was getting down 45% from its 2oo7 high. The housing prices have dropped 20% with a contentious dropping to 35% potential drop. (Creative Commons Attribution, 2010) The total home equity has dropped from $13 trillion to $8.8 trillion and still falling. Whereby, that leads to reduce in purchasing power and the demand of housing has been reduced as a result of it.

The world largest bank HSBC had also written its holdings of subprime elated MBS by $10.g billion and that leads to a shut down of many mortgage companies like the Lynch and Citigroup has resigned within a week of each other in late 2007.

As the subprime mortgage erupted in the united state it leads to a contagious effect on Europe as well. The impact of Europe was in the capital movement. Many banks in Europe have seen an immediate deterioration on their assets leading to the weakening their capital fro example the German IKB Deutsche Industriebanks that has faced large losses from exposure to US subprime mortgage-related assets. Also French banking group BNP Paribas suspended withdrawals from affiliated funds that were exposed to US subprime mortgage-related assets; because of the difficulty valuing these assets in an environment of declining prices. (Sayuri, 2009)