Housing Bubble’s Causes and Impacts on Credit Crisis

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Table of Contents

Introduction
Rhetorical appeals
Rhetorical analysis
Conclusion
Works Cited

Introduction

It is vital for a writer to comprehend and appreciate the use of rhetorical strategies when compiling any rhetoric piece of work. Hence, the ideas and perspectives of the author can only be expressed when rhetoric strategies are applied in a given piece of work.

As such, an author might employ various rhetorical tools depending on the purpose of writing the given piece of information. For instance, some authors may employ logos when they need to represent some statistics, solid evidence or facts. In some instances, ethos may be employed in a piece of writing to demonstrate various levels of credibility.

The paper that I will analyze in this case was written way back in 2008. The paper is entitled A Summary of the Primary Causes of the Housing Bubble and the Resulting Credit Crisis: A Non-Technical Paper and written by Jeff. Holt. The author has worked as the Director for Undergraduate Programs, Department of Statistics at the University of Virginia. This paper aimed at demonstrating how the housing bubble led to credit crisis of 2007.

The author was very formal throughout the article. He employed the third person point of view and presented facts and ideas in their empirical forms. In this paper, I will be exploring the rhetoric appeals and strategies that were used by the author when writing the journal article.

Audience

The intended audiences for this article are the financial business scholars and especially students who are undertaking business related courses at higher levels of learning. This can be judged from the content and arguments presented in the article. However, this paper was written with the instructor in mind.

Even though my fellow classmates would benefit from the rhetorical analysis portrayed in the paper, the author was very keen in meeting the needs of the audience. The author intended to address the paper to all those interested in business concept. From the title of the journal, it is evident that it is a “non-technical paper”. Therefore, quite a wide array of readers can understand the content of the paper.

Purpose

The main purpose for writing this piece of assignment was to demonstrate to my instructor that I was indeed in a position to read, understand and rhetorically analyze a formal article using persuasive arguments. In addition, the assignment was also meant to test my critical thinking and analytical skills through a piece of writing. The author analyses the key reasons why the housing bubble occurred. From his analysis, I was able to write a clear yet detailed rhetorical analysis based on the journal article.

Context

This is a class that we are usually tested on the ability to read, understand and analyze literary content. We were supposed to write a rhetoric analysis paper as part of class assignment given by our professor. We were also required to choose an appropriate article to analyze with the assistance of our instructors. In my case, I chose an online journal article entitled A Summary of the Primary Causes of the Housing Bubble and the Resulting Credit Crisis: A Non-Technical Paper and written by Jeff. Holt.

The instructor also gave out the direction for constructing a rhetorical analysis paper using the triangle technique. The thesis of the paper was to investigate and demonstrate how the housing bubble led to the credit crisis of 2007 by exploring the rhetoric appeals and strategies that were used by the author when writing the journal article.

Style

The journal article was written using a formal style throughout the pages. The arguments and facts presented are also formal in nature. For instance, the author cites other accredited authors throughput the text. The author also used APA style for his references. Based on the content and purpose of the paper, I was supposed to write it using a formal style. In fact, I used formal citations in MLA style. This was necessary because the task was meant to test my ability to communicate, analyze and articulate ideas obtained from a formal document.

Organization

The paper was organized into three main parts with sub-sections as well. These were the introduction, six body paragraphs and a conclusion. Besides, a works cited list was included at the end of the paper. In the introductory part, sub-sections and sub-headings were used in order to make it easy for the reader to follow. The body had two major sections with each section sub-divided into three sections each containing a subheading.

Rhetorical appeals

Logos

This can be defined as the use of logical appeals when presenting reasons, ideas, reasons, and facts and so on. Logos play the role of persuading the targeted audience to agree with the perspectives of the author. One of the Logos used by Holt is statistics. For instance, what caused the housing bubble? Housing prices were rather stable during the entire decade of the 1990s.

For a period of about 8 years (1990-1997), homes prices recorded a marginal rise of 0.8%. The audience can logically understand the reason why the Federal Reserve funds rate had been lowered to about 1.25% before the start of 2003 and up to one percent by June 2003. In addition, it is also evident that the housing bubble caused a major instability in the mortgage market since the interest rates were grossly affected.

Pathos

Pathos tends to address emotional appeals presented in any piece of writing. Holt observes that “even though the U.S. savings rate was low during the housing bubble, an influx of saving entering the U.S. economy from countries such as Japan and China helped to keep mortgage interest rates low” (121). This implies that the credit crisis was occasioned by the immense housing bubble.

The audience is in a position to acknowledge why the low mortgage rates of interest affected the short-term interest rates. During the entire period associated with housing bubble, the loans were advanced to borrowers in the most favorable manner since the terms and conditions were not very strict. Moreover, the author asserts that “mortgage interest rates were falling despite the low savings rate in the U.S. because of an influx of saving entering the U.S. from other countries” (Holt 121).

In this case, he has used irrational exuberance to appeal to the emotional need of the audience when expounding the main pathos in the article. For example, irrational exuberance played a major part in housing bubble and consequent credit crisis since it entailed a lot of speculation in the mortgage industry.

The author has managed to appeal to the audience by asserting that all the players who took part in the mortgage borrowing and lending assumed or speculated that home prices were bound to rise in the near future. In any case, home prices had never went down since the Great Depression era and therefore, all the major parties believed that such prices would never go down.

Even the government regulators never made any attempt to control the rising prices for homes. The author has made it clear by asserting that investment bankers were also very keen in issuing mortgaged backed securities that were highly leveraged. Therefore, it may not be easy to recognize or even control irrational exuberance that accompanies price bubbles bearing in mind that housing was a pretty investment before the crisis began.

Ethos

The persona of the author usually reveals the ethos appeals portrayed in a piece of writing. This information is also contained in the course reader. It is the targeted audience that is supposed to depict the persona of the author. In other words, ethos can only appeal if the writer demonstrates adequate know-how of the information presented in an article, book or any other form of literature. Although the author has not put down his academic credentials, it is evident that he has vast knowledge in this subject area.

For example, he demonstrates that the “standards for mortgage loans were relaxed as a result of the following factors: new governmental policies aimed at fostering an increase in home-ownership rates among lower-income households…” (Holt 124). When the terms and conditions of borrowing from the mortgage market were made more lenient, it became extremely easy for predict the condition of the market.

Holt (120) also reiterates that “much of the financing that fed the housing bubble came from the unregulated “shadow banking system”. The targeted audience can clearly relate the housing bubble and the role of banks in the whole mess. The unregulated system was highly leveraged.

However, a deleveraging cycle was later subsequently created by the banking system which was unregulated. Eventually, this scenario triggered and worsened the credit crisis. Hence, there was panic within the banking system. Hence, lenders were greatly hampered in terms of screening borrowers.

Most of the lending was advanced to individuals without verifying their credit worthy levels. Nonetheless, research studies are yet to be undertaken to determine the actual cause and effect of the housing bubble in relation to credit crisis These are fine details that cannot be given by an individual who is not a specialist in that area. Since he has worked at the department of statistics, he must be knowledgeable enough.

Rhetorical analysis

Comparison and contrast

The author has managed to develop similarities and difference between the housing bubble and credit crisis. According to Holt, “even though the U.S. savings rate was low during the housing bubble, an influx of saving…helped to keep mortgage interest rates low” (121). In terms of reduced interest rates that were being advanced for buying houses, the author notes that huge savings from foreign investors managed to keep the interest rates as low as possible.

The audience is in a position to understand that savings obtained from worldwide sources provided minimal risk environment for investors. Borrowers ended up with huge borrowed amounts from various financiers in the mortgage market. By 2006, the influx of foreign savings in the US market had peaked to about six percent of the Gross Domestic product (GDP) compared to 1.5 percent way back in mid 1990s.

Another comparison and contrast is evident where the Holt affirms that “investors in these countries sought investments providing low risk and good returns” (122). The author also observes that “home prices were still 57 percent higher than they had been in the 1 quarter of 1997” (Holt 121).

Exemplification

The author has used several examples to illustrate various assertions and points in the article. He observes that “For example, the monthly principal and interest payment on a $200,000 30-year fixed rate mortgage with an interest rate of 6 percent would be about $1,200” (Holt 123).

Moreover, the author notes “for example, suppose XYZ Company invests $10 million in mortgage-backed securities (Holt 123). There are several illustrations with examples in the article. In case of any eventualities, these enterprises would be bailed out by the federal government.

Cause and effect

When the cause and effect tool is used well, it can significantly assist a writer to organize ideas in a holistic manner. For instance, there are several causes and effects for reduced interest rates on short term loans. Due to the 2001 recession, the Federal Reserve was compelled to lower the federal funds rate. This action aimed at strengthening the US economy which was already ailing (the cause part). Although this rate was marginally increased in 2004, it remained stable for about three consecutive years (the effect part)

The reduced short-term rates of interest are believed to have contributed towards the hosing bubble in two main perspectives. Hence, several home buyers did not prefer fixed rate mortgages since they were not favorable.

Conclusion

From this rhetoric analysis paper, I have acquired a lot of knowledge on how various tools work for writers when presenting ideas on paper. Before the housing bubble could fully develop, the rates for mortgage loans were rather stable. In addition, the main purpose of writing this article was to demonstrate my ability to read, understand and write a rhetorical paper based on the analysis of a given text.

From the journal article on housing bubble, the author offered a detailed description of why the housing bubble in the United States contributed to the 2007 credit crisis. Finally, the author suggested that the housing bubble was caused by various factors such as fair interest rates and irrational exuberance.

Works Cited

Holt, Jeff. A Summary of the Primary Causes of the Housing Bubble and the Resulting Credit Crisis: A Non-Technical Paper. The Journal of Business Inquiry 8(2009): 120-129. Print.

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