Asset bubbles and the impacts of the United States subprime mortgage crisis on the financial sector

Abstract

The generation of money is linked to the generation of asset bubbles. The goal of this study is therefore the analysis of the definition of what is an asset bubble, because that definition is not uniformly agreed upon by all authors and also changes with time so specific deviations can be observed in the works of individual experts. The financial crisis has an impact not only on private finances, but on public finances. A partial aim of this study is then to assess the impacts of the bubble burst and the subsequent financial crisis, which originated in the U.S. in 2007, for global economy. It was found out by literary researches that the definition of a bubble burst is not unambigous and that there are many means of appreciating financial assets. Technical, fundamental and psychological analyses were introduced. The consequences of The United States subprime mortgage crisis have deep impacts on the american economy. However, the issue was not confined only to the U.S. but real impacts were observed worldwide. The definition of an asset bubble is not unambigous and such bubbles tend to be described ex-post. The price bubble of the american real estates was financed through a significant expansion of mortgage loans. The indebtedness of households with mortgages since the 1990´s was steadily increasing, from 2000 to the peaking of the price bubble in 2006 it was continuously rising by a double digit pace. The „boom“ of providing a still higher number of mortgages enabled a sufficiency or even a surplus of liquidity on financial markets.