JP Morgan Chase Catastrophe

The mortgage crisis of 2007 marked catastrophe for millions of homeowners who suffered from foreclosure and short sales. Most of the problems involving the foreclosing of families’ homes could boil down to risky borrowing and lending. Lenders were pushed to ensure families would be eligible for a loan, when in previous years the same families would have been deemed too high-risk to obtain any kind of loan. With the increase in high-risk families obtaining loans, there was a huge increase in home buyers and subsequently a rapid increase in home prices. As a result, prices peaked and then began falling just as fast as they rose. Soon after families began to default on their mortgages forcing them either into foreclosure or short sales. Who was to blame for the risky lending and borrowing that caused the mortgage meltdown? Many might blame the company Fannie Mae and Freddie Mac, but in reality the entire system of buying and selling and free market failed home owners and the housing economy.

The responsibilities of the mortgage brokers to the borrowers, lenders, and investors were to promote the subprime mortgages to these groups of people in order for them to take out a loan. Although they did fulfill their responsibilities of promoting and having people sign up for it, they mishandled on how people should be granted for a mortgage loan. These brokers were to desperate about earning huge amount of money due to the expanding market that they ignored the proper precaution that they should have taken when they

A similar competitive irrationality happened within the larger banks. Mike Francis said, “I wish we had never done it. Unfortunately we did it because everybody else was doing it”. Tonko Gast also commented “We were a little early in '05 by not wanting to do those deals. And people were laughing at us”. Society reinforces people to appear consistent, and they don’t want to admit failure (Bazerman & Neale, 1992). Therefore no one of them stopped trading the falsified loans until they had to pay for the cost when the crisis came. Just like the 20 dollars auction paradigm, “a bidder may feel that one more bid may get the other person to quit. If both bidders feel this way, the result can be catastrophic.” (Bazerman & Neale, 1992).

During 1997-2006, house prices rose 85 percent. This led to an irresponsible consumer spending spree. Millions of people bought a house that they could not afford. Government regulatory agencies and mortgage lenders became less strict with credit restrictions so that people could buy homes without making any down payment. In 2007, however, the home values and sales began to decline. Due to the loss of trillions of dollars in home value, a record number of borrowers defaulted on their mortgage payments. America was put into a recession in 2008 because of the contraction of corporate spending and consumer purchased. The prices of consumer goods spiked, while employment declined. On October 3, 2008, former President Bush signed the Troubled Asset Relief Program; however, the bill did not restore the economy as a whole. By June 2009, America's economic recovery was at its weakest since the end of the Second World War. I chose this event in history because it had a major effect on America’s economy and changed the course of history. Historians need to study the Great Recession because America should learn from their mistakes. The Great Recession was due to different factors; however, if the regulations on credit restrictions were not tampered with, then the severity of the recession could have been

The recession of 2008 is also called the ‘Great Recession’, said to have begun in December 2007, and took a turn for the worse in September 2008, and it was a severe economic problem expanded globally. This recession affected the world economy, and is said to have been the worst financial disaster since the Great Depression. The decline in the Dow Jones this time was -53.8%. Since the official start of the recession in December 2007, and through June 2010 there have been about 2.3 million homes foreclosed in the United States. In 2012, the state with the most foreclosures in January alone was California, with 51,584 houses being repossessed. Unemployment during this collapse was 8.5%, and continued to increase to about 10% as of 2010. People’s reaction to this recession was a huge decrease in spending and borrowing from banks, but an increase in saving.

EXAMINE THE FACTS. The housing market was making huge financial gains by misleading buyers into buying home that were out of their budget, lenders and originator created unconventional mortgages to people who were at high risk for default.

The housing bubble went into full effect by December of 2007, and is seen to be the leading cause of the Great Recession. With the lowering of interest by mortgage associations, lead to those who had poor credit to obtain a mortgage. Those

The Great Recession officially began in December 2007 and ended in June 2009, making it the longest recession since World War II. Some people blame it on the greed of the Wall Street bankers and others on subprime mortgage lenders. It began with the bursting of an 8 trillion dollar housing bubble. The subsequent loss of wealth prompted sharp reductions in consumer spending. This loss of consumption, joined with the financial market mayhem, also led to a collapse in investment banking. Massive job loss followed the same trend as the dwindling consumer spending and business investment. In 2008 and 2009, the U.S. labor market lost 8.4 million occupations - the most considerable business contraction of any recession since the Great Depression. The Great Recession of 2008 was sparked by the housing crisis and Americans today still struggle with its effects.

The Great recession occurred in America in 2007 when the economy began to decline. The cause of the recession can be contributed to many different sources, but it is clear that the main causes of the recession were deregulation, the “housing bubble”, corruption of “gatekeepers”, derivatives, the strategies of K street markets, and private debt.

JPMorgan Chase had many incidents where it has violated the rules and regulation and ended up paying big chunk of money for the violations. But one of the biggest penalties the bank had to pay was $13 billion. The bank represents several alliances of most Chicago and New York money center banks. In 2008, JPMorgan Chase bought two failing institutions after the government asked it to help out when the institutions got into deep financial difficulties. First one was brokerage house Bear Stearns that was one of the firms that was heavily involved in the businesses of packaging and reselling subprime mortgage-backed securities. In March 2008, to prevent Bear Stearns from collapsing, JPMorgan stepped in to buy the company with help of $29 billion

The Great Recession began in December 2007 and officially ended in June 2009 while many macroeconomic forces were at fault, the primary cause was securitizations of debt. While debt is an important part of any economy, allowing for the financing of business activities, the purchase of homes, and continuing education, there is also an inherent risk in the system. Most debt is issued in with fixed rate interest, though during the 1970 's a new instrument was introduced to both consumers and businesses, which was variable rate loans. This instrument, allowed for introductory rates for a short time frame, then becomes a variable rate, which is normally 200 basis points above the going rate for standard fixed loans. Though a relatively new instrument, it allowed for the most recent recession to become one of the largest losses of capital in recent history, as millions of homeowners were allowed to purchase homes, which they could not afford. This was only the first mechanism, which allowed the market to collapse. Many parallel events to this recession have happened throughout recorded history. The first among them in the United States was the great panic of 1837, which had similar underpinnings as the most recent crisis.

To explain what happened, first we have to look into what a mortgage really is. Basically, someone that wants to buy a house would often borrow hundreds of thousands of dollars from a bank. In return, the bank gets a piece of paper, called a mortgage. Every month, the homeowner has to pay back a portion of the principle, plus interest, to whomever holds the paper. If they stop paying, that’s called a default, when a debtor is unable to meet the legal obligations of a debt repayment, and whomever holds that piece

The Global Financial Crisis, also known as The Great Recession, broke out in the United States of America in the middle of 2007 and continued on until 2008. There were many factors that contributed to the cause of The Global Financial Crisis and many effects that emerged, because the impact it had on the financial system. The Global Financial Crisis started because of house market crash in 2007. There were many factors that contributed to the housing market crash in 2007. These factors included: subprime mortgages, the housing bubble, and government policies and regulations. The factors were a result of poor financial investments and high risk gambling, which slumped down interest rates and price of many assets. Government policies and regulations were made in order to attempt to solve the crises that emerged; instead the government policies made backfired and escalated the problem even further.

The economic recession felt in the United States since the collapse of the housing market in 2007 can be seen by various trends in the housing market. This collapse claimed some of the largest financial institutions in the U.S. such as Bear Sterns and Lehman Brothers, as they held over-leveraged positions in the mortgage backed securities market. Credit became widely available to unqualified borrowers during the nineties and the early part of the next decade which caused bankers to act predatorily in their lending practices, as they could easily sell and package subprime mortgage loans on leverage. This act caused a bubble that would later

After the world experienced the robust growth in the early 2000’s, all things changed in 2008. Banks became too optimistic about the future and gave out mortgages and loans to anyone who wanted one. After all, with the booing economy, banks believed that consumers would be able to repay the loans without any analysis on the future. Once banks realized people could not pay back these loans, everything collapsed. Millions of people around the world lost their jobs. Many companies were forced to close due