What caused the current economic crisis in the United States?

In general terms, The crisis was caused, mostly, by the collapse of the housing bubble in 2006-2007. A large number of mortgage loans securitized on these lost their quote and, suddenly, became illiquid market until then sought funding a significant portion of real state in the United States. From there, and given the framework of structured products around these securitized assets, a growing distrust began in the financial market that is likely to result as coordinated intervention by governments in recent economic history. Also, the finance authorities made a series of mistakes on the regulation and macroeconomics policies which led to inappropiate behavior in both the housing and finnacial market. A lot of people have been affected by this crisis, specially middle clases, because millions are unemployed and also millions have lost their houses.  

SOURCE: CREATIVE COMMONS / FLICKR / IMAGES OF MONEY

Now, i'm going to explain deeper the causes of one of the most horrible crisis the United states have suffered: 


The immediate cause of the crisis was the burst of the housing bubble. Against a backdrop of abundant credit, low interest rates, and rising house prices, lending standards were relaxed to the point that many people were able to buy houses they couldn't afford. When prices began to fall and loans started going bad, there was a severe shock to the financial system. Imprudent lendindg certainly played a role, but subprime loans, which are loans issued to people with poor credit histories, were a relatively small part of the overall U.S mortgage market and of total credit market debt outstanding. 

http://rightfromyaad.wordpress.com/2013/04/05/is-this-happening-again-a-new-us-housing-bubble-say-it-isnt-so/

With its easy money policies, the Federal Reserve allowed housing prices to rise to unsustainable levels. The subprime   homeowners were the most vulnerable part of the population. They didnt have retirment accountsthat they could draw down or family whom they could borrow, when they found that they could no longer meet their mortgage payments. When they no longer had equity in their home against which to borrow, many subprime homeowners had to default on their mortgage. Subprime lenders aggressively, and often marketed mortgages for refinancing to low and moderate income homeowners as a way of getting access to extra money to meet bills or pay for big purchases like a care or home remodeling. As a result of these subprime loans, families who had been secure suddenly faced the loss of their home. 

Securitization 
Securitization fosteres the "originate-to-distribute" model, which reduced lenders' incentives to be prudent, especially in the face of vast investor demand for subprime loans packaged as AAA bonds.
Ownership mortgage-backed securities was widely dispersed, causing repercussions throughout the global system when subprime loans went bad in 2007.
The credit Rating Agencies gave AAA ratings to numerous issues of subprime mortgage-backes securities, many of wchich were subsequently downgraded to junk status. Critics cite poor economic models, conflict od interest, and lack of effective regulation as reasons for the rating agencies' failure. Another factor is the market's excessive reliance on ratings, which has been reinforces by numerous laws and regulations that "use ratings as criterion for permissable investments or as a fctor in required capital levels" (Jickling, 2010) 

The Crisis: 
According to the movie Inside Job by Charles Ferguson, the market for CDOs collapsed and investment banks were left with billions of dollars in loans, CDOs and real estate couldn't unload. In 2008 Bear Stearns ran out of cahs, the Federal Government took over Fannie Mae and Freddie Mac, which had been on the brink of collapse. Also Lehman Brothers collapsed. Merrill Lynch which was about to collapse, was acquired by Bank of America. Hank Poulson and Timothy Geithner decided that Lehman must go on into bankruptcy making Wall Street panic. Two days later Poulson and Ben Bernanke, Fed chairman, asked Congress for $700 billion to bailout the banks, even if million of people and some congressists opposed this action. 

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http://www.neoformix.com/2008/BushSpeechOnFinancialCrisisFAIL.html

References:

•    FERGUSON, Charles. Inside Job, 2010. 
• JICKLING, Mark. Causes of the Financial Crisis. 2010. http://www.au.af.mil/au/awc/awcgate/crs/r40173.pdf 
• BAKER, Dean. The housing bubble and the financial crisis. 2008. 
  http://paecon.net/PAEReview/issue46/Baker46.pdf

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