ALL ABOUT SUB-PRIME CRISES

Over the past few years the U.S. economy relied heavily on the housing market as an economic engine, and the Fed tailored its policies to sustain the housing boom. Freddie Mac and Fannie Mae, after all, are socialized mechanisms for financing houses.
Declaring the crisis a "failure of the free market," many analysts, including former free market advocate Alan Greenspan, are pushing for increased government control of the economy through tightened regulations and increased bureaucracy. But it's wrong to write an obituary for the free market.As a result, Equated Monthly Instalments of homes have shot up by over 40 per cent leading to a rise in defaults.
Through these government-sponsored enterprises, the government makes taxpayers assume the risk of individuals' purchases of homes. This puts the government-sponsored agencies under an increased risk of failure due to the volatile nature of lower-priced mortgage loans. An economy cannot grow and evolve unless investment and capital are allowed to move freely where they can be deployed most efficiently. Those who made bad investments during heady times will learn from their mistakes, and those who were not fatally wounded will be more cautious-and hence better-investors in the future.The result of the expansion is all risk and no reward for American taxpayers.In the recent months, there has been slight softening of rates but there are expectations that it will harden again, if the inflation rears its ugly head again.