The Assertion By Lawrence And Weber Essay

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.

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.

We now know that we have the power to prevent another financial crisis in the future. The oversights of many different groups all led to the chaos of 2008. Looking back, if one or two of these institutions had changed their practices in response to red flags, the growth of the housing bubble could have been dramatically slowed, or even fully prevented.

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.

“Lehman Collapse Sends Shockwave around the World” Reads the British newspaper, The Times, as the world sinks further into the recession in September 2008. The housing collapse was orchestrated and perpetrated by a system created by investment banks to allow them to make money, by keep the American people in debt, even when the banks knew the loans would default. The investing banking system was left unchecked by the United States government because it did not have the regulations as did the depository banks. There was immoral investing in people’s retirement, pensions, and homes where it created at housing collapse, in which thousands of people over paid in their subprime loans and lost their homes in the process. The federal Reserve is a very selfish and heartless entity in America that has had powerful influence in American politics for decades. The Federal Reserve must be dissolved and succeeded by a federalized entity that has no obligation to any investors. It must contain checks and balances to create a fair playing field. It must not benefit one group of people, but the nation as a whole. Finally, the new banking structure must be solid to keep necessities at steady prices, and must not work on speculation. Prior to “the Fed”, two previous central banking systems were in place, but were limited on how long they influenced (both twenty years) their interest in government, and twice, both banking system were not allowed renewal because many political figures,

The financial crisis emerged because of an excessive deregulation of business operation of financial institutions and of abusing the securitization mechanism in the absence of clearly defined rules to regulate this area in the American mortgage market (Krstić, Jemović, & Radojičić, 2013). Deregulation gives larger banks the opportunity to loosen underwriting lender guidelines and generate increase opportunity for homeownership (Kroszner & Strahan, 2013). After deregulation, banks utilized many versions of mortgage loans. Mortgage loans such as subprime and Alternative-A paper loans became available for borrowers challenged to find mortgage lenders before deregulation (Elbarouki, 2016; Palmer, 2015). The housing market has been severely affected by fluctuating interest rates and the requirement of large down payment (Follain, & Giertz, 2013). The subprime lending crisis has taken a toll on the nation’s economy since 2007. Individuals who lacked sufficient credit ratings or down payments resorted to subprime mortgages to finance their homes Defaults on subprime and other mortgages precipitated the foreclosure crisis, which contributed to the recent recession and national financial crisis (Odetunde, 2015). Subprime mortgages were appropriate for borrowers with substandard credit and Alternate-A paper loans were

Over the last half century, our government has been increasing in size. Hamilton might say this is good in terms of centralized government but he also noted that humans are weak and tempted, especially those who are motivated by their own self-interest. The enormous size of government makes opportunities for corruption. By reducing the size of our government, we are cutting spending and overall reducing our national debt issues. One of the issues that our government had created was the housing bubble. Between 2002-2007, the government created new programs under Fannie Mae and Freddie Mac that guaranteed lenders their money back. This was an ultimate opportunity for bankers to take greater risks than ever before. They can keep their profits if it goes according to plan. But if not, the government would step in and bail them out. The current National Debt level is $18T and rising. Year after year, our government has been spending more than what we can afford. Abide by the Constitution of the United States, we can help reduce the overall size of the government. Smaller and smarter government means lower taxes thus creating an environment for small businesses to develop and

The Great Recession inflicted abundant harm in the U.S. and global economy; 8.7 million jobs vanished (Center on Budget), 9.3 million Americans lost their homes (Kusisto), and the U.S. GDP fell below what the economy was capable to produce (Center on Budget). The financial crisis was unforeseen by millions and few predicted that the market would enter a recession. Due to the impact that the recession had, several studies have been conducted in order to determine what caused the recession and if it could have been prevented. Government intervention played a key role in the crisis by providing the bailout money that saved those “Too Big to Fail” institutions. Due to the amount of money invested in the bailout and the damage that the financial crisis had on the U.S. population, “Too Big to Fail Banks”, and financial regulation are two of the biggest focuses of the presidential candidates. Politicians might assure voters that change will occur, but is it to late for change to be efficient, are the financial institutions making the same mistakes that led to the financial crisis?

History has shown us again, and again that when power is left unchecked it becomes corrupt and out of control, that is the iron law of oligarchy. In the US we saw this happen recently in the 2008 economic meltdown. The banks and corporations should never have been aloud to become "to big to fail," and once they did grow to a point when they were there should have been more government oversight to make sure things did not get out of hand. After the great depression laws were put in place to try to prevent something like that from ever happening again, but we undid those restrictions and ended up in a place eerily similar to somewhere we had been before. In this paper I will cover a brief history of the great depression, and show how the situation in 2008 was all too similar. I will also discuss and analyze the factors that brought us to the tipping point in our most recent economic scare. And finally I will explain why the actions taken by the FED were necessary and kept us from an even more

With the American general election cycle in full swing, one of the fundamental issues in play is the role of government. What is the place of Government? What should elected officials be doing? Do they simply protect personal liberties, or do they also establish safeguards and guidelines for various economic activities? Ask any two people and you’ll likely receive two different answers, so nuanced and complex is the issue. Policy can give incentives to business to act a certain way both domestically and abroad. Tax incentives in one region may cause a corporate to relocate (this happened to one of my favorite guitar manufacturers recently, as they moved production from Canada to California!). A central bank’s tweak in monetary policy to shift the cost of lending could ultimately move interest rates for consumers looking to take out mortgages or automobile loans. As we witnessed in 2008, the housing market is of international concern and a large central bank wields enormous power. While we like to call the Western economy a “free market,” there exists a multitude of government policies that impact the freedoms and movements of the economy, for better or for worse. I will present two specific examples of government economic intervention for your consideration, one that has helps economic activity and another that hurts it.

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.

Housing crises are avoidable. They are borne out of lapses in judgment from three main groups: lenders that do not make responsible lending decisions, buyers that do not make responsible buying decisions, and governments that do not make responsible legislation to govern either of the former parties. Each of them needs to be addressed in order to avoid repeating a sordid, destructive past.

In other words, I don’t believe that the free market is entirely self-regulating and has some serious flaws when it comes to looking out for the public’s interests. Perhaps one of the most egregious and recent examples of the free market failing to regulate itself was during the 2008 financial crisis and the years leading up to it. Economists and government agencies have attributed many causes for the 2008 financial crisis, but according to United States (2010), “widespread failures in financial regulation and supervision” and “dramatic failures of corporate governance and risk management” where major causes for the crisis (p. xviii). These failures went on to cause a recession which resulted in a major spike in unemployment, wide-spread evictions, and hundreds of thousands of home foreclosures (Schoen, 2010). This was a prime example of how leaving certain aspects of our free-market economy unchecked and un-regulated can lead to economic catastrophe and severely cripple millions of people financially. In times of crisis like 2008, it is absolutely necessary that the government intervene to provide relief and

Due to such events as the subprime mortgage crisis, the auto market and Wall Street’s failure, the United States suffered a severe economic blow. Looking at the situation from an economic view, supply is supposed to equal demand. Due to the mortgage crisis and the careless attempts of some to make money, there is a superfluous amount of empty homes throughout the United States. In the subprime mortgage crisis, the nature of the failure was the inability to account for money given to individuals, who lack the appropriate requirements. In order to obtain a loan, collateral is needed. References were not being checked and poor credit history went ignored. People were obtaining loans and not paying attention to the interests rates associated. “This time around, the slack standards allowed millions of high-risk borrowers to get easy home mortgages. When this so-called subprime market collapsed beginning about a year ago, ordinary working people bore the brunt” (Gallagher, 2008). Companies were so anxious to place people in homes, that it cost them billions of dollars and