Subprime mortgage crisis The contemporary
subprime mortgage crisis is a complex group of vicious circles, both in its genesis and in its manifold outcomes, most notably the
late 2000s recession. A specific example is the circle related to housing. As housing prices decline, more homeowners go "
underwater", when the market value of a home drops below that of the mortgage on it. This provides an incentive to walk away from the home, increasing defaults and foreclosures. This, in turn, lowers housing values further from over-supply, reinforcing the cycle. The foreclosures reduce the cash flowing into banks and the value of mortgage-backed securities (MBS) widely held by banks. Banks incur losses and require additional funds, also called "recapitalization". If banks are not capitalized sufficiently to lend, economic activity slows and
unemployment increases, which further increase the number of foreclosures. Economist
Nouriel Roubini discussed vicious circles in the housing and financial markets in interviews with
Charlie Rose in September and October 2008.
Virtuous cycles loop to form what has been called a
virtuous cycle—the opposite of a vicious cycle. For example, as more and more solar modules are deployed, prices fall because of the
economies of scale, allowing the technology to become cost-competitive in new applications that in turn increase demand for more deployment. By involving all stakeholders in managing ecological areas, a virtuous circle can be created where improved ecology encourages the actions that maintain and improve the area.
Other Other examples include the
poverty cycle,
sharecropping, and the intensification of
drought. In 2021, Austrian Chancellor
Alexander Schallenberg described the recurring need for lockdowns in the
COVID-19 pandemic as a vicious circle that could only be broken by a legally-required vaccination program. ==See also==