Bank Bailout 2008

The outbreak and spread of the financial crisis of 2007-2008 have caused the most of countries into severe economic difficulties and also created an adverse impact on the global economy. The beginning of the financial crisis is defaults in the subprime mortgage market in the USA. Although the global economy seems to recover since 2009, the impacts of the crisis still affect many countries until now. This essay focuses on the background and impacts of financial crisis, and the learning from the movie The Big Short.

On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which is commonly referred as the Dodd-Frank Act. This act was passed as a response to the Great Recession in order to prevent potential financial debacle in the future. This regulation has a significant impact on American financial services industry by placing major changes on the financial regulation and agencies since the Great Depression. This paper examines the history and impact of Dodd-Frank Act on American financial services industry.

A survey of 37 economists conducted by the University of Chicago in 2014, for example, found that nearly all believed that without the stimulus, the unemployment rate would have risen higher than it did.” In addition to this, President Obama strategized new regulations to protect consumers and to prevent another financial crisis. In 2009 and 2010, he signed the Credit Card Accountability Responsibility and Disclosure Act, the Dodd-Frank Wall Street Reform and the Consumer Protection Act into law. The CCARD Act restricted and obligated interest rates on credit card companies and obligated them to enact transparent policies. The Dodd-Frank created the Financial Stability Oversight Council and the Consumer Financial Protection Bureau which could disintegrate banks if it was possible to fail for any reason including but not limited to subprime loans.

In 2008, the world experienced a tremendous financial crisis which rooted from the U.S housing market; moreover, it is considered by many economists as one of the worst recession since the Great Depression in 1930s. After posing a huge effect on the U.S economy, the financial crisis expanded to Europe and the rest of the world. It brought governments down, ruined economies, crumble financial corporations and impoverish individual lives. For example, the financial crisis has resulted in the collapse of massive financial institutions such as Fannie Mae, Freddie Mac, Lehman Brother and AIG. These collapses not only influence own countries but also international area. Hence, the intervention of governments by changing and

The current financial crisis, which had its roots from subprime mortgage crisis, began to increase dramatically in September of 2008. There have been significant economic disorders in United States alone. Major banks and financial organizations around the world are going bankrupt and writing down billion dollars. Housing markets are falling not just in United States but all around the world. This crisis is truly global and it is spreading like fire. Because of these economic crises, the US Congress came up with a $700 billion bailout plan to buy troubled assets from financial institutions who are struggling financially. Nevertheless, another bailout was proposed and it's the homeowner bailout. It is known that the foreclosure

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.

In 2007-2008 the US went into a recession, a financial crisis that has since then taken five years to rebuild. During that time millions of Americans were unemployed and faced many economic struggles which negatively impacted the real estate market causing a multitude of foreclosures. The reason for this recession was because there was no authority over banks and they were not being monitored properly. Banks were able to gamble with the finances of millions of people with no consequences towards their actions. The Dodd Frank Act Wall Street Reform and Consumer Protection Act of 2010 was put into place to make sure that nothing like this ever happened again; The Dodd Frank Act implemented and set laws into place to make sure that banks and financial

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.

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 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.

The Great Bailout of 2008 was also called The Wall Street Bailout of 2008 or global financial meltdown of 2008 and it was ranked as the worst and most dangerous financial crisis after the great depression of the 1930s. It also reshaped the world of finance and investment banking. Also according to researcher the 2008 financial crisis was the most disruptive political event yet experienced in the 21st Century, and the effects are still being felt today.

As one of the largest banking holding companies, Bank of America has taken a significant role during the whole process of the financial crisis. Compared with financial institutions whose business focused on specific fields, like investment banks or mortgage companies, Bank of Along got involved in activities in various fields that directly related with crisis – deregulation from big banks lobbying, mortgage originating, mortgage securitizing, and CDS dealing. Besides, as a systematically important financial institution, Bank of America was highly

According to the author, the 2007 financial crisis began when banks and mortgage companies used several questionable strategies in order to lure customers into buying mortgages they could not afford. Not only were over ¾th of the mortgage loans made to individuals with bad credit disregarding the risks this would entail but they also

In the new system, an investment banker buys the mortgage from the lender, borrowing millions of dollars to buy thousands of mortgages, and every month he gets payments from homeowners for each of the mortgages. The banker then consolidates all the mortgages and splits the final product into three sections: safe, okay, and risky mortgages, which make up a collateralized debt obligation (CDO). As homeowners pay their mortgages, money flows into each of the sections, with the safe filling first and the risky filling last, contributing to their respective names. Credit agencies stamp the top two safer mortgages with a triple A or triple B rating, which are then be sold to investors who want a safe mortgage, while the risky slice is sold to hedge funds who want a risky investment. The bankers make millions, pay back their loans, and investors also make a worthwhile investment. So pleased are the investors, however, that they want more. Unfortunately, back at the beginning of the cycle, the mortgage broker can no longer find qualified mortgagers

submitted on Sunday, 26 June 2016, 10:51 AMmodified on Sunday, 26 June 2016, 3:48 PM