A frequently asked question nowadays is why the foreclosure crisis could not be prevented. Well, because credit banks had relaxed rules for granting loans and allowed Americans who were not actually able to afford a house to gain approval for a mortgage anyway. Easy to get money! The Fed had become used to the risk through prolonged exposure. However, when Fed monetary policy changed in 2004, federal interest rates rose and the housing boom was about to fail. House prices began to fall, and the number of houses foreclosure taken back by the banks increased exponentially.
Since they did not know exactly where the problem came from and did not want to be hit with big losses, financial institutions decided to limit their exposure from toxic shares, instruments backed by mortgages which, until then, were regarded as "manna”. Therefore, lenders and financial institutions began to be wary about lending to each other, causing a blockage of credit and cash flow. As panic began to set in, banks began to fail and the government found the situation worse, forcing them Fed to take rescue measures that many feel did nothing but worsen the situation.
Congress, for example, used the lending institutions Fannie Mae and Freddie Mac to extend risky credit to the market. The Fed failed to understand that credit freeze is a problem of shared risk, and instead treated it as a problem of liquidity. It threw another tranche of "cheap money" on the market, thus undermining the dollar. Oil prices began to rise uncontrollably.
A number of governmental actions caused deviation of the economy itself and increased consumer uncertainty and economic problems. This was not a pleasant story. Today, many people believe that policy makers should rethink the idea that only frequent and massive actions and interventions of government should be the response to current economic problems.
To continue, since a similar crisis began in Greece, there have been many pessimistic forecasts on the future of the European Union and the Euro area, which distracted attention from any good news about the European economy.
Nevertheless, there are many reasons why Europeans should be happy, at least in economic terms, according to analysts by the Financial Times. First is the European single currency depreciation. The Euro has depreciated rapidly against the dollar because of debts from Greece, providing an incentive to export from companies in Europe, particularly those in Germany and the Netherlands. In addition, the Euro has lowered in value against the Chinese currency, renminbi and other Asian currencies reported in U.S. dollars, had a positive effect, helping, indirectly, the U.S. Congress’ campaign to force the renminbi’s appreciation.
The crisis led to union. Finally, after ten years of waiting, the Euro zone had a crisis, and this was exactly what Europe needed. Thus, government leaders began to work more than they had done before, proving that Europeans do become united when they have problems. Germany leads Europe. Although other countries do not agree, Germany is practically at the head of Europe, which decreases the risk of outbreaks of other crises like the one in Greece. However, Berlin must be aware of policy and the way it is viewed globally.