The Financial Crisis Of The Usa

Financial Crisis of 2007-2008 originated in the United States spread to the financial systems of many other countries, including CIS countries, by means of the domino effect. Bankruptcy of one of the largest Americans Bank, Lehman Brothers Holdings PLC, in someway was a launcher of this global crisis the scope of that can be compared with the Great Depression of the 30s of the last century. No one could have even believed that a crisis in the local market of subprime mortgage loans in the USA would have such enormous affect on the financial systems over the world and crash banking sectors of many countries one by one.

The financial crisis that happened during 2007-09 was considered the worst financial crisis in the world since the great depression in the 1930s. It leads to a series of banking failures and also prolonged recession, which have affected millions of Americans and paralyzed the whole financial system. Although it was happened a long time ago, the side effects are still having implications for the economy now. This has become an enormously common topic among economists, hence it plays an extremely important role in the economy. There are many questions that were asked about the financial crisis, one of the most common question that dragged attention was ’’How did the government (Federal Reserve) contributed to the financial crisis?’’

The Great Recession, coinciding with the subprime mortgage crisis, lasted from the end of 2007 to the middle of 2009. This downturn became the biggest economic crisis that the United States had faced since the Great Depression. Causing high unemployment rates, a decline in consumer confidence and home values, the recession had a great impact on both Americans and immigrants in the United States. Since the 1990s to a few years before the recession, the number of immigrants entering the United States increased at a constant rate as more and more people came to the country in search for better job and education opportunities. This number dropped, however, when the country entered the economic crisis in 2007. The American Community Survey

In response to the 2007-2008 financial crisis, the United States government was charged with reforming many financial systems. One area of concern was credit cards. Namely, many Americans faced financial troubles with credit debt and other credit card related issues. In 2009, Congress passed the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act). The goal of the Credit CARD Act was to protect consumers from dubious credit card issuers. The legislation enacted intends to make the credit card system more transparent and supervised in addition to certain consumer protections. The Credit CARD Act was a major shift in the way credit card issuers were allowed to operate, and most—if not all—credit card issuing

Many people might want to say that the US economy is climbing out of the recession and becoming more stable. Yes,the economy is changing, the unemployment rate is getting better, the GDP is showing a positive increase and the inflation rated is currently at 1.7% which are all indicators that the economy is getting better. Yet, the Fed’s need to monitor the economy because there can be a potential bounce back into recession with the problems in the Middle East, Russia, and elsewhere in the world which can greatly affect the economy here in the U.S. if the U.S gets deeply involved.

In 2008 the U.S. and global economy confronted one of the worst crisis in the history. These financial crisis were considered the worst since the great depression in 1930’s. Several events took a place early in 2007 which led to the economy crash, such as, the massive decrease in home prices in the United States after it was significantly high. This decline in home mortgage market expanded rapidly causing massive crisis in the whole United States financial sector (Bullard, Neely, and Wheelock 2-4). Those crisis had dangerous effects on the stock banking industry, insurance firms, and Fannie Mae and Freddie Mac, the two most important enterprises commissioned by the government to assist mortgage lending, and some other mortgage lenders and financial service organizations. Those crisis generated a decline in banks and financial associations trust of others, believing that they will never get paid back. They simply stopped offering loans to people who needed money to buy a house or start a business, which created a massive decline in the home mortgage market and the whole financial sector of the United States (Havemann 1)

It would be unfair to forecast US economy asked her you were sick on me without asking ourselves an important question,How did we get here at the first play?

It is difficult to quantify exactly how much revenue a bank generates from proprietary trading, one brokerage analyst estimated that 5%-10% of trading done by large banks is a result of trading not done on behalf of the client.32 These investments are the reason Lehman Brothers Holdings Inc., a global financial services firm, failed. The firm participated in investment banking, equity, fixed-income sales, research, trading, investment management, private equity, and private banking. At one time, Lehman Brothers Holdings Inc., was a primary dealer in the United States Treasury securities’ market. In 1998, 25% of Lehman’s revenue was generated from proprietary trades.33 The company, at this time, held $28 billion in securities and other

The 2008 financial crisis was one of the worst economic times since the 1929 Great Depression. It led a worldwide economical, social, and political instability that shook the very foundation of the term “laissez-faire”, or free market. Millions of people around the world lost their homes and their jobs, while large corporations and entire countries were at the brink of insolvency. Others, who are as unfortunate, lost their life savings and pension funds. But it is important to question what led to the events toward the collapse of the world wide financial system.

The year 2008 was a chaotic time in the United States. The investments from companies in collateralized mortgage obligations (CMOs), which were supported by subprime mortgages caught up with those same companies (Poole, 2010, p. 424). Three companies who invested in these CMOs made headlines: Bear Stearns, Lehman Brothers, and American International Group (AIG). This paper will explore what the causes of the financial crisis were, a specific law case involving Lehman Brothers, the Federal Reserve (the Fed) and Congress’s responses, and solutions to prevent an event like this from happening again.

The burst of the housing bubble in the U.S., which peaked in 2004, led to a huge decline in value of securities that tied to U.S. real estate pricing. The effect caused massive damage to financial institution globally. These three factors including price appreciation in housing market, high growth of the private-label residential mortgage-backed security in the main fuel for the extensive growth of the mortgage market beginning in 2000. This section describes the fundamental factors, which are credit risk, liquidity risk, market risk, and operational risk, relating to the financial crisis between 2007 and 2008.

The background of the crisis that started in 2007 actually goes back to the period of 2004-2006, when large foreign investments came to the US attracted by the powerful economy with low discount rates at that period. Investments mainly originated from fast-growing economies in Asia and oil-producing/exporting countries and created an additional supply of money on the market that only intensified the housing and credit bubbles. Large amounts of additional money inflows from around the world into the US economy were also achieved through an innovative tool such as mortgage-backed securities, which derive their value from mortgage payments and housing prices (Bernanke, 2009). As the price’s decline happened and the housing bubble had burst, a lot of institutions reported great losses.

In bond market, there are a number of bonds offered for investors to purchase such as Treasury bonds, municipal bonds, mortgage securities and so on. Among these various bonds, one particular kind of bond is the corporate bond which attracts a wide range of investors with their higher return. However, there are no free lunches in financial market. Being accompanied by the high yield, the corporate bond investors have to face higher default risk which is the risk that the issuer will default on its debt obligation in bond market. Especially after the 2008 crisis crunch in which vast amounts of debt default occurred, an increasing number of investors realize the significance of identifying the default risk in the bond investments. This essay will first consider the reason why investors ought to recognize the default risk and secondly, will explore the different ways in which investors can identify the default risk of corporate bonds.

The recent global financial turmoil started on July 2007 ,mainly in the USA and spread among developed nations in the later part of 2008 and subsequently shifted to the developing nations .this crisis consisted of some prime drawbacks not only for the developed countries but also for developing countries .the most talked about issue in the recent financial arena in the global financial crisis ,which started to show its effect in the middle of the year 2007.the turmoil ,however ,was rooted in the subprime mortgage crisis that began in mid -2007.the massive global crises ,already being dubbed by some as the great Recession since the great depression of the 1930s,began since the end of 2007with the subprime montage crisis in the USA .it subsequently and quickly spread to the international financial system, resulting in negative growth rates in key countries and regions ,including the US,UK and Japan .many developing countries were also infected by the contagion, from China, Brazil and South Africa to the countries of South Asia and Latin America. Asian countries were more affected by a strong recession in the USA Bangladesh

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.