Essay On The 2008 Financial Crisis

During the early 2000 's, the United States housing market experienced growth at an unprecedented rate, leading to historical highs in home ownership. This surge in home buying was the result of multiple illusory financial circumstances which reduced the apparent risk of both lending and receiving loans. However, in 2007, when the upward trend in home values could no longer continue and began to reverse itself, homeowners found themselves owing more than the value of their properties, a trend which lent itself to increased defaults and foreclosures, further reducing the value of homes in a vicious, self-perpetuating cycle. The 2008 crash of the near-$7-billion housing industry dragged down the entire U.S. economy, and by extension, the global economy, with it, therefore having a large part in triggering the global recession of 2008-2012.

The real cause of the crisis was not in the housing market but in the misguided monetary policy of the Federal Reserve. While the economy started to downsize in 2008, the Federal Reserve concentrated on solving the housing crisis yet it was just a distraction from the entire thing. By its self, it might have caused a small downfall. As the Federal agency released the financial institutions at a risk from a number of bad mortgages, it disregarded the main cause of a serious crisis (FEDERAL RESERVE BANK of NEW YORK, 2017) A decrease in the Gross Domestic Product (GDP) which entails the total value of all commodities and services produced in the United States, was not adjusted for inflation. Such a decline began the unplanned crisis in mid-2008, and once it happened, the damage had already

The financial crisis that occurred in 2007-2008 is narrowly related to what happened with the housing market and the foreclosure crisis. In 2006, the housing market peaked due to newly available loans such as interest adjustable loans, interest only loans, and zero down loans for people with low-income jobs. Housing prices were increasing radically and new homeowners were taking out mortgages that they would be unable to pay for in the future, all in order to be able to afford homes with such steep real estate value. By 2007, things began to go downhill. Interest rates had begun to rise steeply, mortgage companies had to file bankruptcy, and banks across the country required bailout funds from the U.S. Treasury in an effort to recover

Big banks in the middle 2000s were flourishing of the money made from selling the mortgages to big investors. While this was great when the banks were giving money to people who were reliable and were going to pay their mortgages every month. And when the investors were making such a hefty profit they wanted more. This is when Subprime mortgages were widely used, giving less reliable lower credit scores the opportunity to get homes. The banks knew that these people would not necessarily always be able to pay, which was the one of many mistakes (Crash Course.) The banks learned that while it did sometimes work out, the consequences of giving out too many unreliable mortgages can bring the whole nations economy down for the housing market has always been the pillar of the economy. The greed of the extremely wealthy continued to overpower the common sense of the

The main reason for the crisis was a boom and bust in the housing markets at the same time. Home values rose rapidly during the beginning of the 2000’s. Many homeowners used their homes and other assets to withdraw equity to produce add-ons to the house, such as kitchens, decks, or patios. Once the value of the houses went down, they could not pay off this extra debt. Homes were beginning to be valued at less than what the homeowners owed on them. This period was powered by leverage, securitization, and structured finance. Housing was a hot commodity at that time, and Americans were taking out hefty loans in order to pay for them. There was a rise in self-employment at that time, and borrowing money was very relevant at that time. Adjustable rate mortgages, which provided initial interest rates and low monthly payments were the most common form of loans between 2004 and 2008. The banks were not careful in their securitization of loans, and a lot of loans defaulted. The defaults mainly revolved around the failing of the housing market. At the time, there was low requirements for down payments on houses. Lenders were only asking for approximately 3%, today it is up around 10% (Golub). This allowed for more and more people to put a down payment on a house, who would not be capable of paying the banks back. During this time, there was a dramatic increase in sub-prime lending, which means that the people borrowing the money had lowering credit

A variety of things led up to the great recession of 2008, from a period of moderation, to a housing bubble, to a housing bubble bust. the government hasn't witnessed an economic downturn like this since the great depression. here are the main reasons why this recession happened. It all started with the moderation showed in the economy between 2000 to 2007. there was low inflation, strong economic growth, and falling unemployment. however, through all this, there was growing instability in terms of credit and financial markets. The next cause of the great recession was a housing bubble. Prices in housing quickly grew to really high prices, this was due to the high confidence and bank lending. Banks later started becoming more careless with

The fall of the housing market that begins the recession in 2008 was in large part due to the fact that people wanted large and expensive homes. These were homes that they could not afford. Real-estate agents and their loan officers help manipulate the numbers for these unfortunate individual to get bank loans from banks who would later foreclose on these homes. As the job market begin to decline and massive layoffs resulted all across the country. Many individuals became delinquent on more than one or more house payments after losing their employment. Mortgage companies Lenders Country wide and Fannie Mac and others found themselves holding a massive amount of risky home loans that could have ultimately collapsed the world banking system.

During the 2008 Great Recession, the financial crisis happened because banks were able to create too much money, way too quickly, and they used it to push up house prices and speculate on financial markets. This was the biggest financial crisis since the Great Depression in the 1930s. The bank was giving out money to the people who couldn't pay it back. There were a lot of subprime loans to those people with poor credit history. Subprime mortgages were often sold to families who didn't even qualify for ordinary home loans. They would sell them to the people who couldn't even get loans and then turn around and sell them to the banks. The banks said that "anyone qualifies for loans". These banks often created a lot of fake inflation.

The 2008 financial crisis led to a sharp increase in mortgage foreclosures primarily subprime leading to a collapse in several mortgage lenders. Recurrent foreclosures and the harms of subprime mortgages were caused by loose lending practices, housing bubble, low interest rates and extreme risk taking (Zandi, 2008). Additionally, expert analysis on the 2008 financial crisis assert that the cause was also due to erroneous monetary policy moves and poor housing policies. The federal government encouraged the expansion of risky mortgages to under-qualified borrowers. Congress pushed for the support of affordable housing through extended procurement of non-prime loans for applicants with low income (Zandi, 2008). The cutting down

Credit rating agencies were giving anything that came across their desk AAA ratings in order to not lose out on competition, real estate agents and mortgage brokers were giving houses and loans to people who couldn’t afford them, and the major banks who held long positions on the mortgage-backed securities were knowingly holding worthless bonds at the expense of the American people. It was the perfect storm for a financial crisis, as there was no one saying “no, we can’t be doing this.” The banks were colluding with rating agencies to rate their securities well until they exited their long position, the rating agencies were receiving good business from the banks, and the mortgage brokers and real estate agents were too ignorant to realize what was going on on the macro

Housing prices stopped rising in 2007. One of the ramifications was that those who rely on re-financing to pay off their previous loans were not able to re-finance any more. People started to default. This entailed big uncertainty the financial market mainly because it became an impossible task to

In 2008, the stock market crash began. Many people couldn’t afford to buy anything in the time being because of the financial crisis.The financial crisis was even worst then the  Great Depression of the 1930s. Many people lost their employments and received low payment from their jobs. The financial crisis actually began in early 2006 because of the subprime mortgage market in the United States, which increased the rate of non-payment. The federal reserve and the treasury department put a stop to the United States banking system from being crumpled. The financial crisis in 2008 caused a lot of economic turmoil because of the increased of unemployment rate and the mortgage crisis.

Financial crisis conditions, the most important things are the subprime mortgage and the exotic ABS such as CDOs. The low down-payment requirement and the lack of sufficient credit check enabled people who were not financially eligible to take large loans to get the money, and allowed them to continue to refinance these mortgages as the home price continued to rise. This introduced large amounts of risks into the market and could send the market into a vicious downward spiral if the home price started to plateau or decline. Also the creation of these MBS made the financial market to be very opaque and had a high level of leverage. People were unsure how much risk was there in their positions, and lacked

The financial crisis of 2008 is known to be the worst disaster in our economy since the great depression in 1929. When federal reserve dropped interest rates to just 1%, investors turned away from such a low return. However, this 1% interest rate is beneficial to banks because they now can borrow from the fed much easier for less. Now there is a bunch of cheap credit across the country. Banks would use leverage to create great deals for profit, they continued the process and became beyond rich, then payed back the government. Investors see this occurring and want to start using leverage in their own way to make money. The investors connect themselves to homeowners and use leverage with mortgages. A family that wants to purchase a home pays

Just after ten years of Asian financial crisis, another major financial crisis now concern for all developed and some developing countries is “Global Financial Crisis 2008.” It is beginning with the bankruptcy of Lehman Brothers on Sunday, September 14, 2008 and spread like a flood. At first U.S banking sector fall in a great liquidity crisis and simultaneously around the world stock markets have fallen, large financial institutions have collapsed or been bought out, and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems. (Global issue)