The Financial Crisis Of 2007

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.

The financial crisis of 2007-2009 resulted from a variety of external factors and market incentives, in combination with the housing price bubble in the United States. When high levels of bank and consumer leverage appeared, rising consumption caused increasingly risky lending, shown in the laxity in the standard of securities ' screening and riskier mortgages. As a consequence, the high default rate of these risky subprime mortgages incurred the burst of the housing bubble and increased defaults. Finally, liquidity rapidly shrank in the United States, giving rise to the financial crisis which later spread worldwide (Thakor, 2015). However, in the beginning of the era in which this chain of events took place, deregulation was widely practiced, as the regulations and restrictions of the economic and business markets were regarded as barriers to further development (Orhangazi, 2014). Expanded deregulation primarily influenced the factors leading to the crisis. The aim of this paper is to discuss whether or not deregulation was the main underlying reason for the 2007/08 financial crisis. I will argue that deregulation was the underlying cause due to the fact that the most important origins of the crisis — the explosion of financial innovation, leverage, securitisation, shadow banking and human greed — were based on deregulation. My argument is presented in three stages. The first section examines deregulation policies which resulted in the expansion of financial innovation and

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

The financial crisis that put our economy on a downhill rocky road is known as the Great Recession of 2008. The U.S. Governments resolution to one the biggest panics was revolved around multiple bailout and fiscal measures. The fight to pull our weakening economy out of a dark hole left the American people with hope of advancing what gets thrown their way. The many bailout programs implemented by the U.S. Government can only hold the economy together for so long until were up to our knees in debt.

The financial crisis of 2008 did not arise by chance. The meltdown was precipitated by systematic striping away of the New Deal era policies of bank regulation. Most notable of these deregulatory acts was that of the Gramm-Leach-Bliley Act of 1999. This bill repealed the legislation which held commercial banks and investment banks separate. As the beginning of the 21 century approached many bankers clamored for an end to the policy of the “firewall” between Investment and commercial banks. Gramm-Leach-Bliley Act of 1999, sought to create more competition in the financial services industry. The policy, however, lead to the conglomeration of many corporate entities as banks had the capital to invest (in the form of consumer deposits) in a

The financial crisis of 2007–08, also known as the Global Financial Crisis, is considered by many economists to have been the worst financial crisis since the Great Depression of the 1930s. Mr. Ben Bernanke, Chairman of the Federal Reserve at the time, believed it was equally problematic in many ways; although unemployment only reached half the level due to the Fed’s actions combined with a $700B stimulus. It collapsed large financial institutions, and stock markets dropped to half their

During the lead up to the financial crisis of 2007-08, a term was coined to describe what was happening in the financial markets. The term was: Shadow Banking System. The creation of the term was attributed to economist and money manager, Paul McCulley, who described it as a large segment of financial intermediation that is routed outside the balance sheets of regulated commercial banks and other depository institutions (St. Louis Fed). In simpler terms, institutions that are in the shadow banking system are not regulated like commercial banks, and carry more risk due to their investments. Examples of shadow banking institutions are money market funds, mutual funds, hedge funds, etc. During the early 1990s, most American citizens didn’t know or never heard of money market funds or mutual funds; typically, the only people who knew of the “shadow banking system” were most likely senior officers at the big banks or individuals who were experts in the financial markets. However, that all changed. At the turn of the century, the shadow banking system started to gain steam and was growing at a faster rate than traditional banks. At the peak of its growth, right before the financial crisis, the shadow banking system, in terms of liabilities, was about 1.5-2 times larger than traditional banks (St. Louis Fed).

Banks were also overvaluing some of the subprime mortgages making a false assumption that housing prices would continue to rise. Subprime loans are loans that are made to individuals who have complications in trying to maintain a more scheduled payment. Individuals who are going through certain hardships in their life such as divorces, unemployment, etc. Most of these investment banks preferred subprime loans because they carried higher interest rates which led to a massive increase in predatory lending. The reason why banks were creating such complex policies were so that anyone who planned to take out a loan would have difficulty translating the documents therefore allowing the banks the take advantage of homeowners without or if any repercussions.

During the financial crisis of 2008, the biggest Ponzi scheme in history was uncovered. It was run by Bernard Madoff and encompassed roughly $65 billion (Ferrell, 2009). Madoff first entered the investment business in 1960 when he started his own company, Madoff Securities (Ferrell, 2009). As his business grew, Madoffbegan employing some of his family members: Peter, Madoff’s brother, joined the firm and helped set it apart from the competition by introducing modern technology. Other family members to join were Madoff’s wife, Ruth; Peter’s niece, Shana; and both Madoff’s sons, Mark and Andrew (Ferrell, 2009). Madoff’sbusiness was flourishing, trading billions of dollars of investors’ money, establishing Madoff as a credible and respected figure on Wall Street. Madoff expanded his influence and reputation by serving as the chairman of NASDAQ for three years in the early 1990s (Ferrell, 2009). It is assumed that the beginning profits ofMadoff’s business were legitimate earnings and not based on fraud. The Ponzi scheme is estimated to have started around 1990, in order to keep up with the high 10-12% return on investments that he promised to his clients (Ferrell, 2009). Madoff’s investors were affluent, prestigious and very intelligent and they trusted him with their money. Throughout the course of the fraud, Madoff was investigated numerous times by the SEC, without any findings or actions taken. There were many individuals who suspected Madoff was running a Ponzi scheme, the

One of the most devastating aspects of the financial crisis of 2007-2008 to middle-class America was the crash of the housing market. Millions of Americans were affected and faced foreclosures on homes that were purchased with subprime mortgages. The impact of these mortgages varied state to state. Nevada, one of the countries leading tourist destinations, led the market in foreclosure rates and housing appraisal drops. The government 's false sense of security in regards to the economy and the predatory lending practices of big banks such as Bank of America, JP Morgan and Wells Fargo, impacted the housing market negatively and ultimately led to millions of people in debt and without a home.

In regards to the Financial Crisis of 2007-2009, a few conceivable reasons can be taken into consideration. For instance, high consumer deficit, high corporate deficit, complex money related securities, transient subsidizing markets got to be vital, extensively feeble administrative/business sector controls, shortcoming in the share trading system, shortcoming in the housing business sector, as well as worldwide monetary shortcomings. Besides the previously mention examples, the untrustworthy conduct by budgetary organizations, the disappointment of the national bank to stop lethal home loans, and over-obtaining by consumers can also be incorporated and taken into account. The effect of the monetary crisis from the perspective of firms was that they confronted declining interest for their products. The organizations thought that it was hard to acquire reserves, in light of the fact that the banks' trust in them had declined. Moreover, the organizations confronted solid rivalry from outside organizations. The likelihood of bankruptcy lingered. From the point of view of investors, the crisis implied conceivable loss of stores and loss of avenues to contribute (Carbaugh, 2006). The financial specialists expected to hunt down more

The housing market crash, which broke out in the United States in 2007, was caused by high risk subprime mortgages. The subprime mortgage crisis resulted in a sudden reduction in money and credit availability from banks and other lending institutions, which was referred to as a “credit crunch.” The “credit crunch” and its effect spread across the United States and further on to other countries across the world. The “credit crunch” caused a collapse in the housing markets, stock markets and major financial institutions across the globe.

After the financial collapse of 2008, the mortgage environment changed dramatically for both buyers and brokers. In order to protect consumers and raise confidence in the market, the Federal Reserve Board introduced regulations that limited what banks and mortgage originators could do such as curtailing certain business practices and imposing stricter requirements on capital. However, these actions have unintentionally affected broker competition, causing big banks to exit the housing market, which has led to the proliferation of shadow banks and higher-risk practices. These unforeseen consequences could potentially put the housing market at risk by creating a negative environment for consumers instead.

The financial crisis that began in 2007 right through to the summer of 2008 was perceived as global crisis that affected various countries including the United Kingdom. It was predominately caused by failure to regulate financial institutions and systems appropriately. (Davies, 2008) The world was shocked and surprised particularly politicians and policymakers. Initially their response was to conduct a crisis management as a solution but later discovered that the crisis was one of the worst in history. As a result reforms on financial regulations had to take place not only nationally but within Europe and on an international level. Gordon (2010) argues that financial crises are nothing new, however they have become more complex over the years and therefore politicians and policy makers face major challenges in implementing the right form of regulation to comply with the complexity of the financial sector. In the UK, at one point in history command and control (CAC) was perceived as the suitable approach to regulate the financial industry; however self-regulation was later introduced as the effective form of regulation based on the neoliberalism concept. After the financial crisis self-regulation was being criticised therefore leaving policy makers, politicians and economists to decide what form of regulation would be appropriate to effectively regulate financial institutions that would avoid and prevent further financial failures. Therefore the purpose of this essay is

The Financial Crisis of 2007-2008 was considered to be the worst financial crisis since the Great Depression in the decade preceding World War II. The Global Financial Crisis threatened large range of the financial organizations. Although the central banks and other banks were trying to keep away from the crisis, the stock market still suffered a huge decline internationally. Other than the global stock market, the house market was also influenced greatly, causing the unemployment, relocation and even the foreclosures. There was absolutely no doubt that the 2007/8 financial crisis brought failure and hard time to the business all over the world, especially the capitalist counties in North America and Europe. Many factors had been discussed to be directly and indirectly caused the Great Recession in 2007 to 2008. After some deep analyses done by the economists and experts, the developed country household debt with the Real estate bubble caused by the low tax lending standards, was the most public belief that people considered as the major cause of the financial crisis. But, who and what was going to be responsible for The Financial Crisis of 2007-2008?