Capital Investment

There are several reasons for the US sub-prime crisis. The taking place of this financial crisis has its necessary reason. In essence, the most important innate reason is the development model of America’s low savings and high consumption. From the aspect of institutional mechanisms, the reason is that negligent supervision of finance, and at this point, there are six serious malpractices.
First, subprime real estate mortgage loans. The most romantic estate mortagage in the world, makes America excessive consumption and super-capacity consumption, makes ten-years brilliance of America’s economy, but hides the serious and bad debt risks. Second, Mortgage Securitization. Huge real estate bubble transferred to the capital market. Third, Alienation of investment banking. Investment banks are financial intermediaaries, but America’s investment banks are temptated by the enormous profit of mortgage securitization transactions. Fourth, High financial leverage. To stablize the financial markets, the financial leverage should be reasonable. Fifth, Credit default swaps (CDS). Sixth, Lack of regulation of hedge funds. All the six links forms spirochetes and groeth chain that lead to the financial crisis.