The Financial Crisis : Rescue Efforts

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The Financial Crisis: Rescue Efforts Throughout the early 2000’s, relaxed lending regulations and lowered interest rates sparked the growth of the securitization of subprime mortgages. In order to increase profit and revenue, a number of financial institutions became heavily involved in the process of securitizing the loans. When house prices began to fall in 2006, homeowner delinquencies and foreclosures increased causing many institutions to become overleveraged. As a result, the destabilization of financial institutions and the economy ensued, provoking the great recession in 2007. In an effort to promote economic stability the United States government intervened and provided financial assistance to institutions with the greatest…show more content…
Consequently, these losses impacted the health of financial markets across the United States and the world. On October 9th 2007, the DJIA closed at a record high of 14,164 before tumbling to below 11,000 in July 2008 (Kosakowski, 2008). As the crisis worsened, the DJIA continued to fall reaching a low of 6,547 in March of 2009. Not only did the DJIA feel the impact of the crisis but the LIBOR did as well. During the middle of 2007, the LIBOR was rallying at a high of 5.3195, however, over the next year the rate would continue to drop until it hit record lows. At the beginning of January 2009 the LIBOR came in below one and continued to hover around .3 and lower over the next few years (Fedprimerate, n.d.). In corresponded with the LIBOR, the Federal Funds rate also fell into a downward spiral from the crisis. Before the crisis was fully realized, the Federal Funds rate was 4.25 in December 2007. As the effects of the crisis grew the rate dropped to .25 by the end of the next year and stayed consistently low over the next few years (Federal Reserve, 2015). Therefore, the financial crisis destabilized the health of financial markets, resulting in the drastic lowering of the DJIA, LIBOR and Federal Funds rate. Relief Efforts In an effort to cushion the effects of the crisis the United States government intervened to help maintain consumer
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