The Financial Crisis Of The Foreclosure Crisis

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Introduction During the real estate boom of the early 2000’s Wall Street began offering a product called mortgage backed securities that were essentially multiple home loans bundled together. They then started selling off pieces of those loans to investors who wanted exposure to the booming real estate market in the form of a tradeable security. As the popularity of mortgage backed securities increased the banks needed more product which were more mortgages. The pool of borrowers with a good credit history diminished the lenders lowered their qualification standards to satisfy the growing mortage demand. To entice more borrowers and speculators lenders began to offer loans to people with bad credit and even no down payment. The term liar…show more content…
The crises showed just how interconnected the banking system is throughout the world. The Lehman Brothers bank closure in 2008 created a major financial crisis around the world due to its influence (The Economist, 2013). It took the government’s massive bail outs to prevent total collapse of the financial system and to some extent economic collapse of the country. This government action set a precedent and to some sent a message that the reckless action by the banks in the name of profit is fine because they now have a safety net. It is a good example of how the collapse of a big financial institution that has national and global influence can affect several interrelated firms to the detriment of the country’s economic interests. This paper therefore, examines the notion “too big to fail” in relation to banking. The Concept Too Big to Fail Kaufman (2014) explains that the concept “too big to fail” is one that is complex to warrant regulation to prevent it from failing. Due to its influence, the government must intervene to prevent it from becoming insolvent. The special regulation to prevent failure includes a requirement for higher capital, putting in place measures such as increased liquidity. Besides, frequent supervision by regulatory bodies like the Basel Committee, the Federal Reserve, or the Federal Deposit Insurance Corporation (FDIC) are necessary to prevent the collapse of “too big to
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