Summary 2008 Financial Crisis

First, I want to give you a little background on the Financial Crisis of 2008/2009. The Financial Crisis began in December of 2007, and by the fall of 2008 the economy was in a huge downfall. This all began in August of 2007 because of defaults in the subprime mortgage market, which sent a shudder through the financial markets. The former chairman of the Federal Reserve described the crisis of 2008/2009 as a “once-in-a-century credit tsunami”. Many firms, including commercial banks, Wall Street firms, investment banks, all suffered significant losses and eventually went bankrupt. This caused households and smaller businesses to have to pay higher rates on the money that they borrowed. This downfall wasn’t just

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

The financial crisis did not happen in a day or two, it was triggered by a variety of events that happened.in years ago. In year 1998, The Glass-Steagall legislation was repealed, it is a legislation that separated investments and commercial banking activities in the financial sector. This act then allowed banks in the US to act in both the commercial and investment fields, which allowed them to participate in highly risky business. This is somehow responsible for the mortgage-backed derivatives, which is a main cause of the

Once the US housing market collapsed, it created a credit crisis and crunch in the wider financial markets. Due to the complexity of CDOs many people had no idea how much they were really worth. Many of the CDOS were worthless and it was almost impossible to find the value of them (7). This led to a moral hazard problem whereby there was an overall caution of banks because many had no idea if they were even bankrupt. Inevitably, the interbank lending system crumbled whereby some banks stopped lending to each other and to corporations altogether or only lent with very high interest rates. Many banks who relied on interbank lending for money were heavily affected by this including Northern Rock. Inevitably, depositors of these banks become dubious of their banks financial situation and were provoked into withdrawing their money.

hroughout History, our great Nation, the United States of America, went through many era's of financial crises that resulted in depressions. This also happened in 2008, when we experienced an immense financial crisis known as the Great Depression of 2008-2009. In an effort to end the financial crises, the government established three major bailouts: the Emergency Economic Stabilization Act of 2008 (EESA), the Troubled Asset Relief Program (TARP), and the American Recovery and Reinvestment Act (ARRA). Overall, the financial crises of the Great Recession of 2008-2009 caused the government to implement various bail-outs in an attempt to stabilize the economy. These programs have their own advantages and disadvantages that affect individuals and

The 2008 financial crisis and the recession that followed were the most severe the United States ever had. The 2008 financial crisis must be discuss as well as what the government did during the recession which led to the slow recovery. First, there are three major types of financial crisis: banking, debt and currency however there is no universal definition of a financial crisis. The 2008 financial crisis was a banking crisis, it actually started in 2007. Many experts on financial crisis have defined a banking crisis as “severe stress on the financial system, such as runs on financial institutions or large-scale government assistance to the financial sector” (Sanders 11). The reason for the 2008 financial crisis and the recession which followed started wat before experts realize there were issues in the financial sector. The government must intervene in a financial crisis to avert disruption of the

The 2008 financial crisis was the worst economic disaster since the Great Depression of 1929, despite efforts by the Federal Reserve and Treasury Department. Housing prices fell 31.8 percent, more than during the Depression. Two years after the recession ended, unemployment was still above 9 percent (Amadeo, 2017).

In 2008, many mortgage dealers issued mortgages with terms that were not in favor of the borrowers. Some of these dealers offered low interest rates but soon doubled and skyrocketed into higher rates in later years. The loaners would then sell these loans to banks such as the Fannie Mae or Freddie Mac. When the housing bubble burst though, many mortgage holders defaulted their loans and led to an economic crisis. Homeowners had a past due payment and couldn’t pay their payments. Many people who owned homes at this time had no backup plans, meaning they had to drop everything, losing thousands of economic growth. This was known as a crisis in confidence, when giant companies to individual investors don’t trust one another.

During the financial crisis of 2007-2008, the U.S. economy experienced one of the most difficult effects of a recession since the Great Depression. In reviewing the causes of both economic downfalls, it can be seen that there were several factors in common that helped cause the recession for each era.

The Economic crash of 2008 had effects on nations around the globe. One of the nations that experienced the most difficulties was Iceland. In late September of 2008 the Iceland government had to purchase the nations 3rd largest bank from going bankrupt. “Iceland…was the first country to really suffer. Its three major banks collapsed in the same week in October 2008, and it became the first developed country to request assistance from the IMF in 30 years.” (Danielsson). The entire government almost suffered from

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

On September 15, 2008, the American bank Lehman Brothers, with holdings over 600 billion USD, filed bankruptcy. This was by far the biggest bankruptcy in U.S history and it marked the beginning and the largest financial crisis ever. How can one of the biggest banks in the world fail? How can a bankruptcy in US make someone on the other side of the world unemployed? The answer is Collateralized Debt Obligations (CDOs) and it all started by new innovations in the financial sector combined with deregulations on the financial market.

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

The 2008 financial crisis can be traced back to two factor, sub-prime mortgages and debt. Traditionally, it was considered difficult to get a mortgage if you had bad credit or did not have a steady form of income. Lenders did not want to take the risk that you might default on the loan. In the 2000s, investors in the U.S. and abroad looking for a low risk, high return investment started putting their money at the U.S. housing market. The thinking behind this was they could get a better return from the interest rates home owners paid on mortgages, than they could by investing in things like treasury bonds, which were paying extremely low interest. The global investors did not want to buy just individual mortgages. Instead, they bought

In 2008 the world economy faced its most dangerous crisis since the Great Depression of the 1930s. The contagion, which began in 2007 when sky-high home prices in the United States finally turned decisively downward, spread quickly, first to the entire U.S. financial sector and then to financial markets overseas. The casualties in the United States included a) the entire investment banking industry, b) the biggest insurance company, c) the two enterprises chartered by the government to facilitate mortgage lending, d) the largest mortgage lender, e) the largest savings and loan, and f) two of the largest commercial banks. The carnage was not limited to the financial sector, however, as companies that normally rely on credit suffered heavily. The American auto industry, which pleaded for a federal bailout, found itself at the edge of an abyss. Still more ominously, banks, trusting no one to pay them back, simply stopped making the loans that most businesses need to regulate their cash flows and without which they cannot do business. Share prices plunged throughout the world—the Dow Jones Industrial Average in the U.S. lost 33.8% of its value in 2008—and by the end of the year, a deep recession had enveloped most of the globe. In December the National Bureau of Economic Research, the private group recognized as the official arbiter of such things, determined that a recession had begun in the United States in December 2007, which made this already the third longest recession in