America's Financial System For The Housing Market

The housing crisis of the late 2000s rocked the economy and changed the landscape of the real estate business for years to come. Decades of people purchasing houses unfordable houses and properties with lenient loans policies led to a collective housing bubble. When the banking system faltered and the economy wilted, interest rates were raised, mortgages increased, and people lost their jobs amidst the chaos. This all culminated in tens of thousands of American losing their houses to foreclosures and short sales, as they could no longer afford the mortgage payments on their homes. The United States entered a recession and homeownership no longer appeared to be a feasible goal as many questioned whether the country could continue to support a middle-class. Former home owners became renters and in some cases homeless as the American Dream was delayed with no foreseeable return. While the future of the economy looked bleak, conditions gradually improved. American citizens regained their jobs, the United States government bailed out the banking industry, and regulations were put in place to deter such events as the mortgage crash from ever taking place again. The path to homeowner ship has been forever altered, as loans in general are now more difficult to acquire and can be accompanied by a substantial down payment.

On October 3, 2008 President George W. Bush signed the Emergency Economic Stabilization Act of 2008, otherwise known as the “bailout.” The Purpose of this act was defined as to, “Provide authority for the Federal Government to purchase and insure certain types of trouble assets for the purpose of providing stability to and preventing disruption in the economy and financial system and protecting taxpayers, to amend the Internal Revenue Code of 1986 to provide incentives for energy production and conservation, to extend certain expiring provisions, to provide individual income tax relief, and for other purposes” (Emergency Economic Stabilization Act). In my paper I will explain and show the relationship between the Emergency Economic Stabilization Act of 2008 and subprime lending, the collapse of the housing market, bundled mortgage securities, liquidity, and the Government 's efforts to bailout the nation 's banks.

The United States will always recall autumn of 2008 as a time of financial terror, and rightly so. After the stock market crash, millions of Americans, previously unaware of the brewing crisis, lost their businesses, their jobs, and their homes. Even now, we still are in a period of recovery from the economic turmoil of that year.

In the lead up to the current recession, when the real estate market began to fall, there were so many investors shorting stocks and securitized mortgage packages that were already falling, that the market simply fell further. There were no buyers at the bottom, and the professional investors made millions off of the losses of others. Beyond this, there was no real federal regulation for securitized mortgages, since there was no real way to gauge the mathematical risk of any given package. This allowed the investors to take advantage of the system and to short loans on real people’s homes. Once these securities were worthless, many of the homebuyer’s defaulted on their mortgages and were left penniless. No matter from which angle this crisis is looked at, the blame rests squarely with the managers who began the entire cycle, the ones who pursued the securitization of mortgages. Their incompetence not only led to the losses of Americans who have never invested in the stock market, but to losses for their shareholders.

Many people today would consider the 2008, United States financial crisis a simple “malfunction” or “mistake”, but it was nothing close to that. Contrary to what many believe, renowned economists and financial advisors regarded the financial crisis of 2007 and 2008 to be the most devastating crisis since the Great Depression of the 1930’s. To make matters worse, the decline in the economy expanded nationwide, resulting in the recession of 2007 to 2009 (Brue). David Einhorn, CEO of GreenHorn Capital, even goes as far as to say "What strikes me the most about the recent credit market crisis is how fast the world is trying to go back to business as usual. In my view, the crisis wasn't an accident. We didn't get unlucky. The crisis came

In 2008, the housing market crashed and America fell into a recession. Many Americans lost their homes. Many investors lost large sums of money, and overall the economic recession hurt America as a whole. Today, we see that the stock market is more regulated than it was in 1929 with the Great Depression and 2008 with the Great Recession, but it is still not regulated as much as it previously was. In 1999, portions of the Banking Act of 1933, more commonly known as the the Glass-Stegall Act, were repealed. The repeal of the Glass-Stegall Act in 1999 sparked the Housing Crisis of 2005 and ultimately led to the Great Recession that America experienced in the 2000’s.

The Great Recession inflicted abundant harm in the U.S. and global economy; 8.7 million jobs vanished (Center on Budget), 9.3 million Americans lost their homes (Kusisto), and the U.S. GDP fell below what the economy was capable to produce (Center on Budget). The financial crisis was unforeseen by millions and few predicted that the market would enter a recession. Due to the impact that the recession had, several studies have been conducted in order to determine what caused the recession and if it could have been prevented. Government intervention played a key role in the crisis by providing the bailout money that saved those “Too Big to Fail” institutions. Due to the amount of money invested in the bailout and the damage that the financial crisis had on the U.S. population, “Too Big to Fail Banks”, and financial regulation are two of the biggest focuses of the presidential candidates. Politicians might assure voters that change will occur, but is it to late for change to be efficient, are the financial institutions making the same mistakes that led to the financial crisis?

The collapse of Lehman Brothers, a sprawling global bank, in September 2008 almost brought down the world’s financial system. Considered by many economists to have been the worst financial crisis since the Great depression of the 1930s. Economist Peter Morici coined the term the “The Great Recession” to describe the period. While the causes are still being debated, many ramifications are clear and include the failure of major corporations, large declines in asset values (some estimates put the drop in the trillions of dollars range), substantial government intervention across the globe, and a significant decline in economic activity. Both regulatory and market based solutions have been proposed or executed to attempt to combat the causes and effects of the crisis.

The banking crisis of the late 2000s, often called the Great Recession, is labelled by many economists as the worst financial crisis since the Great Depression. Its effect on the markets around the world can still be felt. Many countries suffered a drop in GDP, small or even negative growth, bankrupting businesses and rise in unemployment. The welfare cost that society had to paid lead to an obvious question: ‘Who’s to blame?’ The fingers are pointed to the United States of America, as it is obvious that this is where the crisis began, but who exactly is responsible? Many people believe that the banks are the only ones that are guilty, but this is just not true. The crisis was really a systematic failure, in which many problems in the

The unprecedented government intervention during the massive economic crisis of the late 2000’s was met with varied sentiment of economists (Lee, 2009). For example, economist Marci Rossell felt that government intervention was arbitrary and lacked clarity as to which firms would receive government aid (Lee, 2009). She furthered her argument by stating that if the government bailed out homeowners and banks that were borrowing and lending “over their heads,” they were creating a dangerous precedent to set (Lee, 2009, p.40). However, Rossell praised the Obama administration for having a clear grasp on the economic situation and trusted in this administration’s guidance to recover from the economic crisis. Conversely, economist Steven Schwarcz said that though the government bailout in 2008 would cost more than it would have if the government had reacted more swiftly to early signs of recession, these institutions would collapse and fail without government aid (“How Three Economists,” 2008). If these institutions failed, the ripple effect of this failure to the U.S. economy would be irreparable.

In the early 2000s, new opportunities opened doors for the world’s “giant pool of money” (Glass, 2008) to reap large profits through unique housing investments and transformed the residential mortgage market; however, unforeseen events, as a result of poor judgment and flawed actions caused individual turmoil and the loss of trillions of dollars instead. The downfall began with new loan criteria where unqualified individuals could effortlessly be approved for costly loans. This resulted in short-term prosperity for banks, brokers, and Wall Street workers, that ended in long-term devastation. Fundamentally, these investors were using social proof and common biases, both which offered undeniable shortcuts in order to analyze data and make decisions, but which ultimately led to a global credit crisis.

In 2008, the US experienced the traumatic chaos of a financial downturn, whose effects rippled throughout Europe and Asia. Many economists consider it the worst crisis since the Great Depression, and its alarming results are still seen today, a long six years later. Truly, the recession’s daunting size and formidable wake have left no one untouched and can only beg the question: could it have been prevented? The causes are manifold, but can be found substantially rooted in illogical investments and greedy schemes.

In this section, we will examine closely the causes of the 2008 crisis outlined by Inside Job. Firstly, the documentary suggests the financial deregulation under the Reagan administration. In 1982, the Reagan administration deregulated savings and loan companies, allowing them to make risky investments with their depositors ' money. By the end of the decade, hundreds of savings and loan companies had failed. This crisis cost taxpayers 124 billion dollars, and cost many people their life savings. The second one is unregulated derivatives. Using derivatives, bankers could gamble on virtually anything. This allowed AIG to write $3 trillion in derivatives (credit default swaps) while reserving precisely zero dollars against future claims. The third one is the problem with the credit rating system and investment securities. A new system was invented, with complex derivatives, called collateralized debt obligations, or CDOs. Lenders didn 't care anymore about whether a borrower could repay, so they started making riskier loans. The investment banks didn 't care, either; the more CDOs they sold, the higher their profits. And the rating agencies, which were paid by the investment banks, had no liability if

The financial crisis in 2007-2008 in the United States was one of the greatest financial depressions the country has ever faced after the Great Depression. The paper gives out the details of the chain of events which led to the crisis to occur. I discuss the main actors and institutions involved in the crisis. The impact of the crisis on financial institutions, small and large businesses and at an individual level is discussed.. The government and major financial institutions had to take various remedial measures to improve the economy and restore balance. The focus of the paper would be to clearly explain the chain of events that occurred. These chain of events give a clear understanding of why there was an acute credit crunch in the country.

The financial crisis of 2008, which caused the most damage in world economies between the years 2007 and 2009, has a long list of potential culprits that helped to initiate the crisis. The global economy has become so entangled that it is isolate a specific "first cause" or be able to point the blame at any one group in isolation. However, economists now have a whole range of specific causes in which they attribute to the crisis, yet this is still somewhat in dispute. In reality there are most likely a multitude of different factors that all contribute some role in the formation of the crisis. Some common culprits seem to be the repeal of the Glass Steagall Act, the creation of derivative trading, as well as the whole subprime area of lending. However, each of these factors did not exert its force in a vacuum. Markets today are extremely dynamic in nature and all of these factors played a domino role in destabilizing the others.