Subprime Mortgage Crisis

Introduction

The economic turbulence defined as a situation in which the economy of a country experiences a sudden downturn and rise. An economy facing an economic crisis and growth will most likely experience a currency, a drying up of liquidity and rising/falling prices due to inflation and deflation, public and external debt on economy growth, subprime mortgage crisis and falling oil prices. As well as it also is an economic situation that can take the form of a recession or a depression or growth.

Subprime Mortgage Crisis

According to Justine (2014) research show that the global economic crisis is commonly believed to have begun in 2007。 One of the factors that causes global economic crisis is subprime mortgage crisis, when a loss of confidents by United State investor in the value of subprime mortgages and causes liquidity crisis. A subprime mortgages is a type of mortgage that is normally made out to borrowers with lower credit ratings. As a result of the borrower lowered credit rating, a conventional mortgage is not offered because the lender views the borrower as having a largerthanaverage risk of defaulting on the loan such as they have a record of being unable to pay debts and they do not have income source. In addition, lending institutions often charge interest on subprime mortgages at a rate that is higher than a conventional mortgage in order to compensate them for carrying more risk (Investopedia, 2016).

In addition before subprime mortgage crisis happened the housing price is high, everyone was easy to get a home loan, because bank thought that if subprime borrowers unable pay back debt, subprime borrower also can mortgage or sales the house to the bank, therefore they buy house as an investment. But unfortunately in 2008, falling housing price and rising interest happened in United Statedcauses subprime mortgage crisis happened. According to Shujie et al (2008) average US house prices had dropped 18.4% compare to previous year, because of falling housing price happened, many home owners who had taken out sub-prime loans to buy house found they were unable to meet their mortgage repayments, with a large number of borrowers defaulting on loans andbanks were faced with a situation where the repossessed house and land was worth less on today′s market than the bank had loaned out originally, therefore banks faced with subprime mortgage crisis.

The subprime mortgage crisis erupted in United States and then had a contagious effect on many countries. For example UBS the largest bank in Switzerland wrote down more than 18 billion and in March, Britain largest bank HSBC reported a loss of 17.2 billion due to the US housing crisis in 2008 (Carrington Coleman, 2008). Besides that, subprime mortgage crisis also impact Japan GDP fell by around 4 percent in the first quarter of 2009 and the subprime crisiscauses the weakened US dollar and the contraction in US consumer spendinghas reduced consumption demand, which will affect China's exports. Exports totheUS had drop 18.4% and China's foreign trade growth rate may drop below 20 percent.(News, 2008).

Recommendation

At last, the recommend to prevent financial crisis like the subprime mortgage crisis is set a new federal rule aims to make the nation safe from mortgage meltdowns and it is called the "ability to repay" rule, setting guidelines to make sure mortgage borrowers generally will be able to afford the monthly payments when they buy a home.

Falling Oil Prices Are a Factor and Effect the Unemployment

The turmoil in financial markets has had a particularly big impact of the price of commodities, including oil, the most economically significant product of them all.  That is because the price of a barrel of oil fell from around $60 in late June to under $40 in 2015. Over time, that will be good news for American and European energy consumers, but there are complex feedback loops that probably make the product sell-off both a cause and a result of the broader emerging markets panic (Neil Irwin, 2015).  Furthermore, Russia also ready for the zone of global turbulence and the relation between oil.As forecasting earlier, the prices of some exotic varieties of oil have already dropped below zero. This means that buyers are willing to buy this oil only if they are paid for it (Rusvesna, 2016).

Besides that, according to GENEVA (ILO News), Economic turbulence largely due to rising oil pricescould drive an increase in global unemployment by 5 million persons in 2008.  Through the ILO report have noted that the decreased in the growth in developed economies attributed to higher oil prices so far had been “compensate for in the rest of the world”, especially in Asia, where economic and job growth stay strong. However, the ILO report warned that an prospective slowdown in growth during 2008 could increase the global unemployment rate to 6.1 per cent, with a resulting sheer increase of at least 5 million unemployed worldwide (International labour Organization, 2008).That isbecause if the turbulence stemming from the crisis in the US housing sector, rising oil prices and consumer uncertainty will slow GDP growth and put labour markets worldwide at risk in 2008 (Kanaga Raja, Geneva, 2008).

Lastly, the unemployment causes a few negative consequence, both for the unemployed as individuals and society as a whole.  They can be divided into two groups, there are have social and economic.  The social impact of unemployment is mental health problems.  With the lost income and the setback involved in it, and the unemployed people may develop negative attitudes toward common things in life and may feel that all sense of purpose is lost.  The frequent emotions could be low self-esteem feeling crestfallen and hopeless.  Next is unemployment financial costs.  The government and the countries suffer. In many countries the government has to pay the unemployed some benefits. The greater the number of the unemployed or the longer they are without work the more money the government has to shell out.  Therefore, the country not only has to deal with the lost income and decreased production but also with additional cost.In addition, the economic impact of unemployment purchasing power.  The purchasing power of an unemployed person and their family decreases drastically so they would rather save than spend their money, so this behaviour will affects the economy adversely (Job-Interview-Site.com, 2009-2015).

Recommendation

Due to this world have so many countries are have faced the problem of unemployment. So, in my opinion is for those local government can set a rule for which the country are facing the unemployment rate. The rule is, local governments must be to set a law the outsides people cannot to work into the local country. Hence, this way can reduce the unemployment rate in each country, and let out a lot of job opportunities for the local people. Therefore, this method can effectively help solve the unemployment problem.