The American real estate bubble of 2003-2007 that originated the financial subprime crisis

Abstract

I will examine in detail the outstanding inflation in housing prices in the United States in the period prior to the 2008 sub prime crisis, starting from the common characteristics of a housing bubble, analysing the environment in the yearly 2000's and the government regulation that fostered the demand for mortgages with high risk profiles. The second part will be more financial, based on the description of the mortgage back securities and all the derivatives (like CDO's) linked to the house mortgages, concluding with the CDS's (credit default swap) that had an important role in the bubble. I will also mention the role of the rating agencies that where engaged in a non-regular network with banks and financial institutions. To conclude i will talk about the burst of the bubble and the consecutive financial decline, how the decline has been stopped, and some advises on how to prevent a real estate bubble in the future.