Root Causes Of Financial Crisis

The financial crisis from2007 to 2008 is considered the worst financial crisis since the Great Depression of the 1920s and destroyed the U.S. economy severely. It led the housing prices fell 31.8%, the unemployment rate rose a peak of 10% in the United States. Especially the subprime market, began defaulting on their mortgage. Housing industry had collapsed. This crisis was not an accident, it caused by varies of factors. The unregulated securitization system, the US government deregulation, poor monetary policies, the irresponsibility of 3 rating agencies, the massed shadow banking system and so on. From my view, the unregulated private label mortgages securitization is the main contribute factor which led the global financial crisis in 2008.

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

The financial crisis that happened during 2007-09 was considered the worst financial crisis in the world since the great depression in the 1930s. It leads to a series of banking failures and also prolonged recession, which have affected millions of Americans and paralyzed the whole financial system. Although it was happened a long time ago, the side effects are still having implications for the economy now. This has become an enormously common topic among economists, hence it plays an extremely important role in the economy. There are many questions that were asked about the financial crisis, one of the most common question that dragged attention was ’’How did the government (Federal Reserve) contributed to the financial crisis?’’

Levin, Carl, and Tom Coburn. United States. United States Senate. Wall Street and the Financial Crisis: Anatomy of a Financial Collapse. Washington: Committee on Homeland Security and Governmental Affairs, 2010.

In 2008 the United States experienced the worst financial crisis since the Great Depression in the 1930s, primarily because of the bursting of the U.S. housing bubble and increasing default rates on subprime mortgages which caused the price of house to increase once a high amount of loans were given out by banks to potential homeowners. Securitization played a big role in this because of how risky the regulations are and the giant corporate companies that are truly fluctuating and controlling the market. At the peak of the financial crisis new specialized mortgage lenders and securitizers came along unrestricted by government regulations which resulted in an extreme number of foreclosures and the stock market to plummet.

“Since 2007 to mid 2009, global financial markets and systems have been in the grip of the worst financial crisis since the depression era of the late 1920s. Major Banks in the U.S., the U.K. and Europe have collapsed and been bailed out by state aid”. (Valdez and Molyneux, 2010) Identify the main macroeconomic and microeconomic causes that resulted in the above-mentioned crisis and make an assessment of the success or otherwise of the actions taken by the U.K government to resolve the problem.

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.

Before the pre-2008 economic recession era, people were ignorant of what was bound to happen. Life was a party. Incomes were steadily rising: most people in every financial class had a credit card, a family to support, and an opportunity to do so by moving into the biggest house they could find. Mortgage loans were given out to anybody with a heartbeat and credit rating, this is called a subprime mortgage. If somebody wanted a new home they could get it, no matter if they could afford it or not. However, when interest rates started to rise people were not able to pay their mortgages and their homes were foreclosed upon. Homeowners who were not careful — or just plain unlucky — when choosing what mortgage was suitable for their income were either left homeless or stuck living paycheck to paycheck. The capitalism party was over. Everyone stopped buying what they once thought they could afford just so they could maintain proper housing, in turn a recession began. So was the 2008 financial crisis caused by the homeowners? Homeowners in the United States — for the most part — are not gluttons for bigger and better homes they can not afford, it was a case of misinformation perpetrated by investment banks and mortgage lenders in the pursuit of more money. When higher interest rates began to kick in misinformed homeowners could not pay their steep mortgages anymore, resulting in multitudes of mortgage defaults. Mortgage defaults and the housing bubble did play a significant role in

In President Obama’s address after the financial reform regulatory meeting he says that the financial crisis was “not inevitable” but was it preventable? There are many theories on to what and who is responsible for the 2008 financial crisis and it is still largely debated. One of the more popular explanations of the financial crisis is that the bankers and banks got too greedy. There are many people who think that homeowner’s were pushed into mortgages without full knowledge and disclosure of their loan terms. The bankers and banks at the time didn’t care that they were putting people into bad loans because their liability was being removed when they sold off these subprime mortgages. It is easy to put the blame on the mortgage brokers

The year 2008 was a horrendous year for most, in terms of money. The housing bubble deflated and the steep drop in prices sent both institutional investors and average investors into financial turmoil. There is quite a bit of controversy as what actually caused the housing bubble, but in this essay we will be using the explanation given by John C. Coffee Jr. Here he identified various factors that worked in tandem to subsequently cause the financial crisis of 2008. The first was the systematic failure by what he termed a “gatekeeper.” Which he later defines as financial institutions that provides verification for investors. In this instance the gatekeeper was the credit agencies who failed to appraise the actual value of the mortgaged backed

From 2000 to 2015, college graduate salary increases year after year, but there are ups and downs in the process of rising. There are many factors of these ups and downs, such as economy, policy, social development and so on. For example, in 2008 the US financial crisis directly affected many industries, and led to a larger employment shock, which led to the decline in wages. And then because of the subprime mortgage crisis in the United States caused by international financial tsunami, leading to many of the world's financial institutions in the chain of bankruptcy, and triggered a lot of the financial industry has been layoffs wave. The financial crisis of 2008 has infiltrated a lot of real economic fields, and brought great negative impact

As evolution proceeds through time, it carries the gift of facilitation and intelligence. However, in today’s intellectually advanced society there has been a cloud of egotism that has decimated mortality and integrity amongst individuals in an unpredictable economy. The financial crisis that took place from 2007-2009 was based on the lack of moral judgment and a surplus of gluttony that affected the united states economy drastically. This crisis is primarily based on the negligence of banks by granting loan opportunities to individuals who do not qualify due to bad credit score, lack of assets to make a down payment, employment status. However, numerous banks had predicted and were aware that most of the individuals who applied for a loan and did not qualify would default on their mortgage, which would allow banks to repossess the house and sell it for maximum value.

At first, nobody foresaw what was about to happen to the economy. The economy at first was at a state of peace and unity. People were taking loans and purchasing houses and these houses were increasing in value. The banks were giving out loans to the people to purchase the houses and earning money on the interest of those loans. That is when people began to notice the advantages of what could be taken from this economic situation. With a new method of earning money quickly and easily, it is no surprise that everybody began to try and use the same methods. Soon enough, the Financial Crisis of 2007-2008 was born into reality. But the real question is, what were the main causes of the 2007-2008 financial collapse?

This chapter is about the background of 2007-2008 financial crisis. The 2007-2008 financial crisis has a huge impact on US banking system and how the banks operate and how they are regulated after the financial turmoil. This financial crisis started with difficulty of rolling over asset backed commercial papers in the summer of 2007 due to uncertainty on the liquidity of mortgage backed securities and questions about the soundness of banks and non-bank financial institutes when interest rate continued to go up at a faster pace since 2004. In March 2008 the second wave of liquidity loss occurred after US government decided to bailout Bear Stearns and some commercial banks, then other financial institutions took it as a warning of financial difficulty of their peers. In the meantime banks started hoarding cash and reserve instead of lending out to fellow banks and corporations. The third wave of credit crunch which eventually brought down US financial system and spread over the globe was Lehman Brother’s bankruptcy in August 2008. Many major commercial banks in US held structured products and commercial papers of Lehman Brother, as a result, they suffered a great loss as Lehman Brother went into insolvency. This panic of bank insolvency caused loss of liquidity in both commercial paper market and inter-bank market. Still banks were reluctant to turn to US government or Federal Reserve as this kind of action might indicate delicacy of

In this essay, we are trying to look at the factors responsible for the global financial crisis in 2008-09 which started in US and later spread across the world. By now, a lot of studies have been done on the global financial crisis of 2008. We explain briefly the role of the financial engineering which leads to combination of various financial securities, the actual risk of which is not clearly assessed and hence leading to the financial crisis. There were also some serious lapses in regulation and failure of the rating agencies in assessing the risks assumed by the financial products which accentuated the crisis.