Credit Cards And The Foreclosure Crisis

1535 words - 6 pages

This economic turmoil started with home loans and the credit card industry. We have a generation that never understood how to use credit properly and we now have higher claims of bankruptcy than we have ever had as a nation. The recession started because our nation was growing too fast for itself, people were taking out loans for homes they could not afford and the banks were letting them. We also have had a huge credit issue lately; I have even seen it personally with my parents, their interest’s rates have all gone up. Real credit cards, not debit with a credit logo, are a huge responsibility, which many people have proven they cannot handle. If a million teens default on a $500 payment at 22% interest, which is $610,000,000 that is put off onto the credit industry this in turn puts pressure on both the market and the companies taking the debt. This process started the national economies suffering. According to the US census, there are about 21,500,000 teens. So the million I have just mentioned is only about 5% of the teenagers in America. So, while the home loans devastated the banking industry, the credit industry was also becoming under fire. In the end, it all came back to the Stock Market, which lead to the recent collapse. When the debt hit the stock market and the companies, investors saw what was happening and pulled their funds, and thus the businesses tanked.
The market and housing collapse happened because banks were giving out over-generous loans that were only maturing and never reimbursing the banks back and inflating housing costs, this put pressure on the banks and weakened their stock, so everything began to slowly spiral downward. As the banks felt the pressure of all these old, they had to raise mortgage rates of other patrons to keep afloat, or at least keep their numbers up so investors would not pull out and cause the company and stock to evaporate. Yet, this was just a temporary solution that just made things worse than they had to be. It was one of the first signs that a recession was imminent, because rates for credit and mortgages started to rise; as more people could not pay their mortgages, the more the banks had to float their debt in hopes they would have some positive momentum in their investments, which were going nowhere due to all the debt floating around. However, banks eventually had to start foreclosing, and this is what finally made everyone feel the pressure and started to catch media attention. As more people lost their homes and had their mortgages risen, the market started to show the imbalance, and people were not buying homes because either they were trying to make their own mortgage payments or they already had lost their house and now had to rent. However, since many people had the banks foreclose on them, their credit scores went bad, interest rates sharply increased, and they soon could not even keep up with the rent of their new abode. Therefore, the banks took the debt and a...

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