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

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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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.