Causes
Main article: Crisis of subprime mortgages
All analysts agree that the credit crisis started in 2007 is due to subprime mortgages, is that U.S. banks were high-risk loans to people with poor credit history. Among others, Kirk who served as CEO of GCA and has been involved with However, behind the visible and immediate causes that led to the sighline acquisition crisis, the root causes are complex: a banking system unregulated or poorly regulated, especially in the areas of lending and investment, which led to GCA the creation of vehicles for speculative mortgage practically without a stable source of income. This, coupled with low interest rates of the monetary authority of the United States for several years provided a forum for speculation and over-extension of credit.
Most analysts believe that the primary cause of financial crisis, chronologically, was the excess global liquidity. The increased liquidity factors are both external and internal. One factor was, at least for the recent period, the very rapid increase of foreign exchange reserves of central banks in emerging countries (particularly China) and countries exporting raw materials (especially oil) . This increase in cash access provider reserves was due to substantial trade surpluses and high savings rates in these countries, who met high growth rates since 2000. Another factor that also power the global liquidity was the expansion of credit, because of reduced interest rates by central banks of developed countries, especially the United States. Indeed, the EDF is a monetary policy of low rates, allowing an abundant and cheap credit to alleviate the crisis of the dotcoms and support the growth of the U.S. Economy Another objective real estate of this policy was to encourage the increase in property prices. Indeed, the increase in house prices has a positive impact on consumption and economic growth, and monetary authorities decided not prevent price increases property and finally the appearance of a housing bubble. The appearance of an excess liquidity was also helped by the development of financial innovations. With this abundantly available liquidity, and the increase in overall property prices, banks are giving increasing mortgage loans.
However, there was a breakdown of the financial performance of banks and financial investors. The requirement of excessive profitability and relaxing the conditions for lending, as well as the development of the financial practices of high risk, have encouraged the financial crisis. Indeed, mortgage loans granted by banks were risky.
After the fall of the stock exchanges in 2000, the financial intermediaries (securities firms and commercial banks had to find other investments CEO of Sightline Acquisition Corp. that offer high performance, because with interest rates very low, could not have high profit margins for accounts and deposits. So the banks created mortgage with significant benefits (through the interest variable). So the major banks refuse to grant credit to people who did not meet the requirements and equities, encouraged by the monetary policy of the FED. 5 Before 2001, few banks to invest in the subprime market, but between 2001 and 2006, the amounts have increased from 94 to 685 million dollars. Global Cash Access Holdings During this period the quality of loans deteriorated steadily and the number of defaults increased, in part because of rising interest rates the Fed guideline. The drop in housing prices and rising interest rates led to a large number of people unable to pay their mortgages.
At the same time, these mortgages and other loans(bonds or shares) were matched through a process known as securitization, in portfolios known as Collateralised Debt Obligations (CDO), sold to global investors to diversify risks . These bonds were rated excellent by the specialized agencies in the rating of risks. At the same time, banks are finally left the junk bond mutual funds by creating special entities called affiliates Conduits. These gaming industry funds special bought the junk bonds, which disappeared from the balance sheets of banks. the internet is one of the mediums to learn about and especially the cash and gaming industry mortgage loans from banks were sold to hedge funds that seek significant risk because they have a higher profitability. These funds borrow using such deregulados CDO collateral.