The Deregulation Of The Domestic Credit Market

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 July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which is commonly referred as the Dodd-Frank Act. This act was passed as a response to the Great Recession in order to prevent potential financial debacle in the future. This regulation has a significant impact on American financial services industry by placing major changes on the financial regulation and agencies since the Great Depression. This paper examines the history and impact of Dodd-Frank Act on American financial services industry.

The bursting of the housing bubble, known more colloquially as the 2008 mortgage crisis, was preceded by a series of ill-fated circumstances that culminated in what has been considered to be the worst financial downfall since the Great Depression. After experiencing a near-unprecedented increase in housing prices from January 2002 until mid-2006, a phenomenon that was steadily fed by unregulated mortgage practices, the market steadily declined and the prior housing boom subsided as well. When housing prices dropped to about 25 percent below the peak level achieved in 2006 toward the close of 2008, liquidity and capital disappeared from the market.

The banking industry consists of almost sixty-five hundred banks that are insured by the Federal Deposit Insurance Corporation (FDIC). Out of these, there are eighty-one substantially large banks in the United States that are publically traded, which is where the market structure and industry information will be based. However, as with the rest of the country, these banks are very concentrated, with the largest banks accounting for over half of the market as well as accounting for the largest amounts of revenue.

The recession of 2008, which we are only just starting to come out of, happened as a result of a few major factors. The primary factor was the deregulation of banks during the Bush administration. Another factor was that banks offered loans without looking into the financial stability of borrowers or businesses. Also, credit unions, savings and loans, and banks entered into competition with each other. The Security and Exchange Commission, S.E.C., reduced requirements so that banks could pile up debts.

Securitization history can be traced back to 18th century, but the first examples of mortgage-backed securities can be found in 19th century in United States, that are the farm railroad mortgage bonds of the 1860s. After the Great Depression, the government took several initiatives to increase the supply of funds for mortgages loans. Their aim was to support the primary market first, and then the secondary market. In 1934, the Housing Act was enacted and FHA (the Federal Housing Administration) is created by the U.S. federal government. The FHA developed the fixed-rate mortgage, which is an alternative of balloon payment mortgage. In 1938, the federal government also created Fannie Mae, a government-sponsored corporation, in order to create a liquid secondary market of mortgages.

The best solution to the mortgage crisis America is facing today is both easy . . . and difficult to execute. The solution is two-pronged: change the American philosophy on consumerism and debt while also making concrete changes in the way the lending industry works. Both demand taking a long-term view in order to be successful.

One of the primary factors that can be attributed as to have led the recent financial crisis is the financial deregulation allowing financial institutions a lot of freedom in the way they operated. The manifestation of this was seen in the form of:

The mortgage and financial collapse of the United States economy had a very devastating impact on thousands upon thousands of Americans. I count myself as one who also had been affected as well.

In the early-2000s, Moody’s, one of the leading credit rating agencies in the world, evaluated thousands of bonds backed by so-called “subprime” residential mortgages—home loans made to those with both low incomes and poor credit scores. When housing prices began to fall in 2006, the value of these bonds disintegrated, and Moody’s was compelled to downgrade them significantly. In late 2008, several commercial banks, investment banks, and mortgage lenders that had been

It is better to take out a 15-year mortgage instead of a 30-year mortgage because you will ultimately pay less, even though you pay more each month. A 30-year mortgage makes you pay more in total because of the interest. Your interest will not stop and you get more money added by the end of your 30-year mortgage. You can stack up almost 200,000 dollars more to pay from the 30-year mortgage than the 15-year mortgage. The 15-year mortgage lasts shorter but you do not have the interest for nearly as long. Interest can get to you because with it, you never pay back only the amount that you took out from the

During the industrial revolution, new companies were developed on the Swedish market. There were a lot of different kinds of industries that operated in different economic branches like mechanical engineering, power utilities, paper making and textile sector. Of course that rapid industrial expansion couldn’t be occurred without a well-functioning risk capital market. For that reason during the industrial revolution, it was simple to create small commercial banks. The private banks allowed money to start-up companies, they granted a sort of loan beneficial to create more and more new enterprises. If the companies were able to show positive business results, their stocks were be sold on the stock market. In that way the banks could granted credits

There has been a debate for years on what caused the Financial Crisis in 2008 and if there was one main cause, or a series of unfortunate events that led to the crisis. The crisis began when the market was no longer funding many financial entities. The Federal Reserve then lowered the federal funds rate from 5.25% to almost zero percent in December 2008. The Federal Government realized that this was not enough and decided to bail out Bear Stearns, which inhibited JP Morgan Chase to buy Bear Stearns. Unfortunately Bear Stearns was not the only financial entity that needed saving, Lehman Brothers needed help as well. Lehman Brothers was twice the size of Bear Stearns and the government could not bail them out. Lehman Brothers declared bankruptcy on September 15, 2008. Lehman Brothers bankruptcy caused the market tensions to become disastrous. The Fed then had to bail out American International Group the day after Lehman Brothers failed (Poole, 2010). Some blame poor policy making and others blame the government. The main causes of the financial crisis are the deregulation of banks and bank corruption.

One of the first indications of the late 2000 financial crisis that led to downward spiral known as the “Recession” was the subprime mortgages; known as the “mortgage mess”. A few years earlier the substantial boom of the housing market led to the uprising of mortgage loans. Because interest rates were low, investors took advantage of the low rates to buy homes that they could in return ‘flip’ (reselling) and homeowners bought homes that they typically wouldn’t have been able to afford. High interest rates usually keep people from borrowing money because it limits the amount available to use for an investment. But the creation of the subprime mortgage

Consistent with it is that only 6.7 percent of firms in Sweden identified access to finance as their top obstacle. In comparison, 28 percent of firms selected an “inadequately educated workforce” as the top obstacle. In general, Sweden consistently ranks high on a number of indexes related to access to financial services.