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IV. DEFINITION OF THE FINANCIAL CRISIS

The present financial crisis has derived from more than one source although many blame this on the subprime mortgage industry. The truth is that the present financial crisis can be blamed on many aspects of economic policy and practice areas. The work of Jawai (2008) states that the problems stem from the collapse of the dotcom boo in the early part of the decade and the subsequent period of low interest rates. (p.2)
Lower interest rates worked to drive excessive lending and risk-taking in the financial sector. In 2006, 15 percent of the mortgage market in the United States were loans known as sub-prime loans. The banks repackaged their risks into complex financial products and sold these to other financial institutions
April 2007 witnessed the collapse of sub-prime lender New Century Financial and this collapse was only the first of many casualties. The British government nationalized the mortgage lender Northern Rock and soon afterwards Bear Stearns collapse due to subprime loans. Fannie Mae and Freddie Mac were nationalized in September 2008 because of the great losses suffered due to mortgage defaults. Soon afterwards Lehman Brother, the United States fourth largest investment bank collapse

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