...| | |The 2008 Financial Crisis | |A Review and Critique | | | |Nicholas Makris | |12/4/2012 | | | Introduction The 2009 economic crisis was significant for two reasons: the rapid rate at which the free market constraints were dropped, and the lack of any stable resolution by the Left (Mellor, 2009). Tenets pertaining to market domination suffered a lethal crack owing to multiple nations realizing the inessential communization, rather than the actual, of economic arrangement (Mellor, 2009). The core of the problem was complicated, but simplification showed...
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...Causes of Economic Crisis of 2008 and its resulting Recession Student’s Name Institution Introduction The economic crisis of 2008 which began in the United States had great impact in the global economy. The economic crisis began slowly and grew into global economic crisis. It has affected the stock markets to the extent of stopping operations. In the US it is an issue which has been used as a campaign tool for presidential candidates to request for votes during their campaigns. Due to the crisis many US citizens have felt its impact and even lost their jobs. The crisis began with the United States housing market and gradually resulted into liquidity crisis (Steil, 2009). It is in this regard that this paper looks into the causes of the economic crisis of 2008 and its resulting recession. Causes of the 2008 crisis and its resulting recession Actually, the United States experienced many serious problems that included frozen money markets, plummeting dollar, banks on the threshold of bankruptcy, declining stock market, high levels of public debt and the impending threat of recession. According to some economists, the economic crisis was mainly affected by the world imbalances, perceptions of interest rates, risks and the regulations of the financial system. The following are the main causes of the economic crisis of 2008: Housing Crash The United States housing market is one of the main determinants...
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...Abstract This paper will examine the 2008 financial crisis. In this paper we will answerer what caused the financial crisis of 2008, and what has happened since then. It will focus on risky behaviour and increased asymmetric information almost always lead to more risky behaviour and eventually a cycle thus causing a contraction in an economy. It would highlight the main causes and effects. Finally there would be an analysis and conclusion with recommendations. Introduction The year is 2008, the greatest ever economic issue is upon us, could even be described as a disaster. The financial crisis is one that changed landscapes literally and figuratively and forced the implementation of laws to avoid such a disaster happening again. With its...
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...2008 FINANCIAL CRISIS Name Course Date 1. Background The financial crisis commenced in August 2007 after the preceding inflation. The crisis became more defined throughout 2007 and gained momentum in 2008. This took place even after the financial regulators and the central banks’ tireless attempts to tame the situation. It is alleged that the main factors that influenced its manifestation include corruption, fraud, speculation, greed, bankers and bankers’ bonuses. However, the academic discourse, politics or media has been unable to solve the mystery surrounding the main causes of the crisis[1]. The mystery is academically relevant to the world of research just like the Great Depression, whose causes are still being discussed. Other sources believe that the crisis might have been as a cause of human failures especially following the refusal to bail out the Investment Bank Lehman Brothers. The housing bubble was the immediate trigger of the 2008 financial crisis. The following were the triggers under the housing bubble. I. Subprime lending A subprime mortgage is the mortgage that is readily acceptable without imposing strict measures of standard on it. Before the 2008 financial crisis, there existed a fierce competition between mortgage lenders. The competition between the mortgage lenders ensued from the struggle for market share and revenue. It also took place in tandem with limited supply of creditworthy borrowers which put unconditional stress...
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...Banking Academy | City University of Seattle | CORPORATE FINANCE THE GLOBAL FINANCIAL CRISIS 2008 Group’s member:Nguyễn Như Nam (C)Phan Thu AnNguyễn Thùy DungHoàng Bá SơnNgô Thị Ánh TuyếtDate: 28/11/2014 | AbstractIn 2008 the world was fell into the worst financial crisis since the Great Depression of 1929-1933. Although this crisis has gone, however, its consequences for the economy of many countries is very serious, even now many nations are still struggling to escape difficulty. Just in a short period, the crisis originating from America has spread to all continents. It led to a series of serious consequences such as the falling in stock markets, increasing in unemployment rates, large financial institutions had been collapsed or bought out, and governments in many strong countries had to come up with rescue packages to bail out their financial systems. So why does it have tremendous destructive power? What are its causes and its development? What are the consequence it bring to the world? And what are the lessons drawn from this terrible event? Derived from these questions above, this paper will generalize about the global financial crisis 2008. | Table of Contents Abstract i 1. Background 1 2. Reasons 2 2.1 The housing bubble 2 2.2 Fed had lower interest rates for a long time. 2 2.3 The subprime boom 3 2.4 Securitization (MBS, CDO) and Credit default swaps (CDSs) 3 2.5 The credit rating companies. 5 2.6 Structured investment vehicle...
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...Eco 101.01 9:45 AM Class 30 November 2010 Special Topic 5- The Crisis of 2008: Causes and Lessons for the Future 1.) Why did housing prices rise rapidly during 2001-2005 and then fall in the years immediately following? Did regulation and monetary policy play a role in this housing boom and bust cycle? “During the years of 2001-2005 housing prices rose due to the fact that the mortgage default rate and the foreclosure rate was at an all time low” (pg.671). The government was making new standards for housing loans and mortgages, which made them more affordable and easier to get, even if you didn’t actually meet the old standards you could still be eligible for loans and mortgages. Immediately after this housing boom, a bust arisen in the housing prices. The bust was caused because many of the monthly mortgage payments stopped coming in. This was because mortgage loans were made to more people whose chances of repaying them were less than in the past. These mistakes can simply be blamed on misjudgments by the banks and other leaders. When millions of these payments stopped coming in, there was no amount of financial expertise on Wall Street or government help that could save the whole investment structure built on the foundation of those mortgage payments. Government regulation and monetary policy played a significant role in the housing boom and bust cycle because government regulations and interventions are precisely what pushed lending institutions to reduce the standards...
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...the nature and the aftermath of the 2008 financial crisis During the periods the 2008 financial crisis, zero equity lending to homebuyers immensely flourished through the development of financial instruments known as Mortgage Backed Securities(MBS). There are many possible explanation how mortgage securitisation in subprime was effectively encouraged. First of all, a major policy set by the Bush Administration to fuel home ownership to lower income groups by providing easier access to loans for borrowers with zero equity lending. In addition, the crisis was triggered by overvalued subprime mortgages based on the idea of continuous increases in housing prices. Hamilton and Schwab (1985) find that house price changes are positively correlated...
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...Financial crisis 2008. What is it? The Great Recession was a period of general economic decline observed in world markets beginning around the end of the first decade of the 21st century. The exact scale and timing of the recession, and whether it has ended, is debated and varied from country to country. In terms of overall impact, the International Monetary Fund concluded that it was the worst global recession since World War II. According to the US National Bureau of Economic Research (the official arbiter of US recessions) the US recession began in December 2007 and ended in June 2009, and thus extended over 19 months. The Great Recession was related to the financial crisis of 2007–08 and U.S. subprime mortgage crisis of 2007–09. Why it happened? Exist four main reasons for financial crisis 2008: 1) Sub-prime mortgages 2) Collateralized debt obligations 3) Frozen credit markets 4) Credit default swamp What led to this? Once upon a time, investors in the United States bought Government bonds, which were very reliable investment, but after unrest in the Government rate reduced to 1% that did not like investors and they refused. But banks were just glad now they could borrow nearly free loans and earn money using financial leverage, and then return the borrowed money. Soon this game banks hooked investment banks by selling them mortgage loans for real estate. Because real estate is always grew up in price, and fast, then won it all. Further, the Bank takes many loans...
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...Introduction What provoked the largest financial crisis since the Great Depression? The answers include a diverse array of immediate and deeper causes in the housing and financial sectors of the U.S. economy. While the recessions initial spark was found in housing, U.S. government policy in addition to careless behavior on the part of both lenders and borrowers, along with poor corporate governance can be linked to the massive subprime loans that ultimately turned into the subprime crisis. Self-interest by subprime lenders and Government Sponsored Entities (Fannie Mae) are also liable for escalating the crisis. Among these factors, here I will mainly discuss three principal causes that have come to my attention; the housing price bubble, poor governmental oversee, and the subprime mortgage-lending boom that it fed. The Housing Bubble: From 1980 to 1997 the real price of housing in the United States had remained relatively stable. After controlling for inflation and differences in house size and quality, we still see that the average price of a home in 1997 was only 2% more than the average price one century earlier. This flat trend had ultimately ended beginning in the late 1990’s and early 2000’s. When the housing prices had peaked in 2006, the average price was close to twice the long-term average price from 1980 to 1997. Only six years later did the price return the long-term trend (Shiller Housing Price Index). The origin of the housing bubble is much similar...
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...Stephanie King Professor William Badley Eng 1020-058 1 May 2013 The US Economic Crisis In the course of my research I have found that there are vastly different views of the crisis, its causes, and the solutions. The starting point of the financial crisis began when brokers from the firm J.P. Morgan met at the Boca Raton Resort in Florida to discuss ways that they could increase their capital and reduce risks. In so doing enabling them to avoid the federal laws that limited the amount of money they could invest by forcing them to keeping millions of dollars of funds in reserve in case the debts turned bad. They came up with the idea of inventing a device to protect these loans and free up capital. They conceived a kind of insurance where a third party would assume the risk of the debts going sour in exchange for a monthly premium, thereby separating the risks from the loans, and leaving them free to invest larger amounts of capital, and so credit default swops were born. The first negative was that these were agreements between two private entities that were not regulated by the federal government, and soon no entity that was guaranteeing these debts realized how big the market had grown, who was guaranteeing these debts, and how much these debts were worth. These debts created huge profits for investors and investment companies causing a worldwide economic boom. The original idea created by JP Morgan mutated so many times, allowing every other...
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...information, you may think it may be the status of a certain poor country. The particularly serious numbers show that country is experiencing many problems. I will tell you a secret that you can not have more surprise. The above information is situation of the country that has a most powerful economy all over the world. That is United State of America. The year 2008 marked the economic crisis which caused the USA severe damages. Many of the US financial institutions have suffered heavy losses due to the effect of this crisis. In addition, the crisis is increasingly spreading to the economies of some countries in Europe and in Japan... As a result, some powerful banks in these countries are also suffering from the impact of the crisis. The consequences of the crisis are not only observed in the dimensions of business operation and the economic growth rate and employment rate in the US, but also taken into consideration on the global impact on the shift of international investment capital flow in particular and the world’s economic growth in general. Therefore, it is really necessary to find out what creates this crisis in order to help other countries avoid it. My...
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...Time: Monday / 2pm Table of Contents Abstract The Tech Bubble Introduction Lowering of Interest Rates Adjustable Rate Mortgage Securitization Mortgage Backed Securities Collateralized Debt Obligation Credit Default Swap Government Reaction and Policies Emergency TARP Repercussions Basel Disadvantages Future Policy Requirements Controversy Conclusion Reference List Review of the causes of the 2008 Financial Crisis in US. Abstract This paper seeks to summarize a stream of research that has delved into the major causes of the financial crisis in 2008. More precisely, we will be looking at a combination of causes such as the sub-prime mortgage crisis, the mortgage backed security, the collateralized debt obligation as well as how the incidental credit-default swap contributed to the incident. This paper will begin from analyzing the past, when it happened and how it built up and resulted in the financial crisis. The significance of this literature review seeks to give a simplified explanation of the financial crisis of 2008 and will be useful for the people unversed in economics or finance but wish to have a basic understanding of its causes and history. The Tech Bubble During the early 2000, numerous companies and individuals bought new operating systems that were Y2K-ready in fear that the “Y2K” problem would cause computer systems to malfunction. This had allowed technology companies to generate obscene amounts of revenue. At one point,...
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...Yang Vang ECO 204 The Cause of the Economic Crisis of 2008 Two thousand eight found the American economy in turmoil. The housing market made a dramatic incline which caused an increase in foreclosures. The major investment banks took a huge fall and the stock markets fare no better either. These were events that leaded up to the economic crisis of 2008. There were three major government incentives that were implemented; the Housing and Urban Development policy, Reinvestment Act, and the Federal’s low interest rate policy. These were the incentives that the government provided that ultimately caused the economic crisis of 2008. During the mid-1900s the government set up regulations to help Americans own homes and this made it possible for lenders to lend money to everyone, regardless of income. This was the American dream that people work so hard for. So when it was made possible by the government regulations, there was no stopping Americans from jumping on that wagon. The home owing process was made possible by HUD (Department of Housing and Urban Development) regulations that required lenders like Fannie Mae and Freddie Mac to accept loans with little or no interest down (Pozen, 2010, p. 28). The loans held by Freddie Mac and Fannie Mae went from 25% in 1990 to 45% in 2001 (Gwartney et al., 2008, pg. 481). They owe about half of the United States’ mortgage markets. Then there was the Reinvestment Act that reduced the conventional lending standards to meet the requirement...
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...The financial crisis we experienced in the U.S. beginning in 2008 was due to years of irresponsible trading of securities and also due to loans being offered to those who couldn’t afford them. An increase in subprime mortgagees really began back in 1999. This marked the early stages in which creditors approved homebuyers with less than perfect credit to buy a home. Fannie Mae was known as one of the banks that pretty much approved any and every one in an effort to allow them to experience the American dream, owning a home. Many of these borrowers were considered high risk and so they were faced with unfavorable terms within their loans. They had variable rates and high interest rates which combined is a recipe for disaster. Later, in 2002,...
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...| | | | There were many factors that lead to the financial crisis of 2008. In 2001 America was facing the possibility of a recession, in part due to the terrorism attack. Fearing this recession the Federal Reserve decided to cut interest rates drastically with the plan to slowly increase it over time. Banks and other financial institutions saw this as an opportunity to make money and used the low interest rate to capitalize in real estate. Banks began the spiral of offering no money down mortgages with the cheap money interest rates to subprime borrowers, many which had little money and no assets. As the real estate business began to boom the prices of houses increased. Many people felt a false sense of security in the value and asset of owning a home could offset the failing stock market. Banks began to repackage these loans into collateralized debt obligations and sold them out to other financial institutions creating complex chains of debts. As the interest rates increased as planed the risks began to unravel. By 2006 many borrowers were defaulting on mortgages they could no longer afford to sustain and the housing market began to decline. In 2007 feeling the financial effects of the bad loans; many institutions were showing hundreds of millions in losses and expecting more each day as more people defaulted on their loans. It was at that point the public panicked realizing that the economy was spiraling with no hope of recovery. Banks came to a financial halt and many...
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