Causes of the current financial crisis in america and consequences on the real estate market in france

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Essai en anglais sur la crise des subprimes

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• Publié par: aramis
• Nombre de lectures: 519
• Langue: English

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What were the causes of the current financial crisis in America and what have been the

consequences on the real estate market in France ?

The global forecasts concerning the economy in developed countries are nowadays very

pessimistic. The words that are the most used to explain it are “subprime crisis” or

“financial crisis in America”. This huge event seems to be linked to the depreciation of

real estate in America. So why occurred this crisis, which some people, such as Alan

Greenspan compare to the 1929 crisis? What are the consequences in France on the real

estate market?

The causes are the overdevelopment of financial products, sell by banks and traders over

the world. These products, that were composed of many securities (titres), comported

very often parts of debts of people who bought a house in the US. The problem were that

loans were granted to poor people, even people who were not able to reimburse the loan.

But people thought that the price of the house, when sell, could reimburse it. The crisis

appeared because too many loans were granted, and too many financial products based

on these loans were sold: People were not able to reimburse their debts, so they sold

their houses. As a consequence, prices fell, and so the sell of the house could not

reimburse the debt, and so the banks were not able to get their money back.

This is the beginning of the crisis.

The consequences are enormous, because, many banks, hedge funds and other financial

institutions lost a lot of money in this subprime crisis. So they have less money to lend to

firms, that can not develop themselves, and who do not get loan they were accustomed

to get. That is the way the crisis contaminates the “real economy”. Governments in all

developed countries tried to implement reflation, by forcing banks to grant loans to firms,

or by recapitalising or taking over financial institutions that were financially endangered

by the crisis.

The consequences in France are the same, because, with globalisation, all financial

institutions are linked. But the consequences in the real estate market are the most

important. Indeed, banks are now very suspicious, because they do not want that the

mechanism that took place in America arrived in France. As a consequence, less and less

loans were granted to people, and so less and less people buy a house. So the demand

fall and so the prices are falling. For example, in Strasbourg, prices fell of about 10%.

Many estate agencies have made bankruptcy, because the number of transactions is

falling. Of course, some cities, such as Paris or Lyon are resisting, due to the quality of

the goods, and of the prestige of these cities. But how long will they be?

Nobody knows when this crisis will finish. Let’s just hope that this crisis will enable a new

reflection on our current economic system, and will be the occasion to reform it.