Subprime mortgage crisis of 2007-09 & the recent Eurozone crisis Essay

Subprime mortgage crisis of 2007-09 & the recent Eurozone crisis - Essay Example Investors lost confidence in the highly indebted countries as a result. Another similarity between the crisis was in respect of fake ratings that gave illusions of low risk. S&P and Moody provided fake ratings regarding the performances of the different countries and made banks invest in weak borrowers (sub-prime individuals and highly indebted countries) (Cohan par 3). In both cases, the crisis was fuelled by panic when the reality dawned on different players (lenders/investors/governments). In the case of the U.S., banks realised that the sub-prime mortgage derivatives could not sell when the prices of houses fell and responded by tightening their lending conditions and everyone tried to sell the mortgages to recover at least part of their investments (Krugman 14). In the Eurozone, when investors realised that the governments of PIGS were highly indebted, investors panicked and stopped their lending and investment in the market. The crisis had more or less similar effects; loss of jobs, business closures, countries’ growth rates reduce significantly. One difference between the two crises is in respect of their causes. While the crisis in the U.S. was mainly caused by the issuance of sub-prime mortages, the Euro-zone crisis was mainly caused by overspending by governments on different fronts. Cohan, Peter. Four Parallels Between Europes Debt, Sub-Prime Mortgage Crises. 2011. Web.