The Cause of the 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.

The United States has one of the biggest and fastest growing economies of the world. Our financial system has been affected by numerous crises throughout the years and as a result Congress has reacted in the most recent times and two well-known acts have been signed into laws by the presidents at the time to protect investors and consumers alike. A brief overview of the Sarbanes-Oxley Act of 2002, a discussion of some of the provisions therein, opinions of others regarding the act and also my personal and professional opinion will be discussed below. The same will be examined about the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The government formulates various laws to achieve optimum utilization of resources in the public sphere. Sarbanes-Oxley Act is one of the numerous laws drafted to optimize resources utilization in public companies (McNally, 2013). The act seeks to attain maximization utilization of resources by entrenching accountability and transparency in the reporting of financial matters. To this end, this paper explores the effects of Sarbanes-Oxley Act on United States financial market.

This paper provides an in-depth evaluation of Sarbanes-Oxley Act, which is said to be promoted to produce change in the corporate environment, in general, by stressing issues of public accountability and disclosure in the financial operations of business. It explains how this is an Act that represents the government 's and the Security and Exchange Commission 's concern in promoting ethical standards in terms of financial disclosure in the corporate environment.

The requirement of central clearing promotes transparency, and “skin in the game” rule encourages banks to take less speculation, and a more standardized and transparent market will be formed in US. As a result, with better regulated financial system and more sophisticated investment protection, America magnetizes more international capital flows, which boost the development of US financial institutions. In the meanwhile, other countries tend to follow the US regulation standard, improving market discipline of global financial institutions. However, magnates in financial industry with unchanged risk-taking tendency can manipulate their leverage ratio, and the credibility of information they state can be

“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.

In 2008, one of the biggest financial recessions of our time occurred. The blame that should be placed on the unexpected crash of the housing market should come from the shady business strategies used by banks and investment agencies, which caused millions of everyday people to lose their jobs and homes. The role of subprime mortgages, CDO’s, and illicit ratings caused the biggest financial crisis since the Great Depression. The culmination of these things led to the downfall of the economy and start of a recession.

The reality of systemic risk made the task of regulating the financial system increasingly complicated, as the crises aren’t contained in one country or market. The extreme inter-dependence between the different agents is the main reason why we need regulation today, as some misconducts can cause a domino effect, affecting markets globally. The structure of the banking system in itself explains this process. In the finance industry, banks borrow money from other banks. If one bank fails, the one who lent the funds in the first place might also follow the same path, creating panic in the markets. The government’s first prerogative is to protect its citizens from these

The main cause of the Crash of 2008 was deregulation in 1980s of Financial Institutions which include Banks, Insurance Companies, Credit Rating Agencies etc. As a result of this deregulation, the Financial Institutions started playing in their own ways to get maximum personnel benefits. By the time the crisis was over, the top five executives of Lehman Brothers made millions of dollars between 2001 to 2007, the AIG’s Financial Product Division lost 11 billion dollars, instead of being fired, and Joseph Cassano, the head of AIGFP, was kept on as a consultant for a million dollars a month. The use of derivatives, subprime loans, and much greed within Wall street were all factors that caused the economy to drastically drop in the first place; making mortgage-backed securities in danger of defaulting. Brooksley Born was one of many that attempted to regulate derivatives; unfortunately she did not succeed. To pay for troubled assets from financial institutions, the Senate passed the $700 billion bailout bill that came out of taxpayers. Additionally President Obama came up with an economic plan that enforced regulation to speed up recovery. Although, I believe “command and control” was the wrong path to take.

Today, because of the way congress has structured GSEs Fannie Mae and Freddie Mac undermine market discipline and actualize reverse incentives, leading to immoral behavior by market participants. The promise of market discipline is its ability to identify risk and deters immoral behavior. The 2008 financial crisis was induced by the dissolution of market discipline and rampant immoral behavior. Thus, to safeguard against another financial crisis congress should address moral hazard and restore market discipline. The first recommendation is to reduce and limit the size of Fannie Mae and Freddie Mac. Which would allow open competition in the mortgage industry and enable the market to decide the best investments. The second recommendation is to impose stricter reporting and accounting regulations to improve transparency and disclosure of GSEs’ activities and financial position. Transparency of information will allow investors to have more relevant information and giving them the ability to identify risk in a timely manner.

This paper provides an in-depth evaluation of Sarbanes-Oxley Act, which is said to be promoted to produce change in the corporate environment, in general, by stressing issues of public accountability and disclosure in the financial operations of business. It explains how this is an Act that represents the government's and the Security and Exchange Commission's concern in promoting ethical standards in terms of financial disclosure in the corporate environment.

Since the year 2008, many countries had been suffered from a financial crisis or Hamburger crisis, because of the mistaken policy, complex financial system etc. which cause a severe shock to the financial system globally. From this impact, the federal government of United State of America (USA) and other countries had injected a large fund for retrieving this situation significantly. Therefore, it can be explained that understanding the main causes of the financial issue can assist each country to clarify problems. The purpose of this essay is to elucidate regulatory failure in 3 major types: first, misguided intervention in the U.S. second, failure of financial risk management, next, the lack of transparency regulation in private and

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.

Nowadays, as the whole world faces a high degree of globalization, integration, and combination, the global financial system is becoming more complex when there are more kinds of financial activities and demands from individuals and organization are more diversified. At the same time, speed and scale of money and capital transfers are increasing, not only confined to domestic investors. A worldwide financial system was gradually set up according to the establishments and improvements of global transactions, institutions, and agreements. (缺new producers/ regulators)This new global financial system emerged during the first modern wave of economic globalization, a ‘golden’ time that everyone was eager to join in after the 1990s recession, to maintain the domestic price and economic stability and improve the transparency and efficiency of international markets as well.

Financial crisis is often related to a situation that the value of financial asset(s) or financial institution(s) drops rapidly. Financial crisis is not likely to occur suddenly. It must be a process from creating the bubble till the bubble bursting. As many factors can be attributed to financial turmoil, usually there are several reasons for a financial crisis. It may seem that nothing going wrong when various factors are simmering. Thus, when the bubbles burst, everything comes together rapidly with great impact. When the bubble in American sub-prime mortgage lending and mortgage backed securities (MBSs) burst, no one knew it would lead to such a pervasive global financial crisis. Those toxic assets such as