The Global Financial Crisis Of 2007 / 8

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 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?’’

As a result of that the EU had to re-evaluate their financial systems, the international financial structure and monetary system. Therefore they formed a European Financial Stability Facility (EFSF) in May 2010 try to help those countries that were badly hit by the recession and were struggling to repay their debts.

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 stock market is what one would know as a collective group of buyers/sellers that trade stocks, also known as shares on a stock exchange. These securities are listed on the exchange itself and trade freely each and every day. On the exchange, stocks move hands day in and day out. Companies are able to get their stock listed on the exchange at any time that they want. There are other stocks, too...known as OTC stocks or over the counter stocks that go through a specific dealer. Larger companies tend to have their stocks listed on exchanges all throughout the world. Participants in the market can be anyone from your grandma, to retail investors, day traders, institutional investors, and so forth. One notable exchange is the NYSE; also known as The New York Stock Exchange. Moving forward, a stock market crash is when a decline of stock prices takes place throughout the stock market that results in a catastrophic loss of wealth via paper. The crashes are driven strictly by panic 9 times out of 10 a crash takes place. As a crash is happening, panic occurs; the panic keeps evolving and ends up like the snowball effect before you know it. A crash occurs when economic events take place. These events are always bad news... The behavior of traders follows, which leads to a crash when panic ensues. Crashes normally occur of a seven day period and may extend even further. Crashes happen in bear markets as the market is already weak to begin with. Once traders see a drop in prices,

On September 15, 2008, Wall Street entered the largest financial crisis since the Great Depression. On a day that could have been called Black Monday, the Dow Jones Industrial average plummeted almost 500 points. Historically prominent investment giant Lehman Brothers filled for bankruptcy, while Bank of America bought out former powerhouse Merrill Lynch (Maloney and Lindeman 2008). The crisis enveloped the economy of the United States, as effects are still felt today. Experts still disagree about what exactly caused the greatest financial disaster since the Great Depression, but many point to the repeal of the Glass-Steagall Act of 1933 as a gateway to the rise of extreme laissez-faire policies that allowed Wall Street to take on incredible risk at the expense of taxpayers. In the wake of the crisis, politicians look for policies that reign in the power of Wall Street, but the fundamental relationship between economic and political power has made such regulation ineffective.

A mortgage meltdown and financial crisis of unbelievable magnitude was brewing and very few people, including politicians, the media, and the poor unsuspecting mortgage borrowers anticipated the ramifications that were about to occur. The financial crisis of 2008 was the worst financial crisis since the Great Depression; ultimately coalescing into the largest bankruptcies in world history--approximately 30 million people lost their jobs, trillions of dollars in wealth diminished, and millions of people lost their homes through foreclosure or short sales. Currently, however, the financial situation has improved tremendously. For example, the unemployment rate has significantly improved from 10 percent in October of 2009 to five percent in

were reaping the rewards while taxpayers were inheriting the risk. In 1993 Congress met the opposition half way by slowly incorporating direct federal loans but still keeping guarantees in place for the banks. After the financial crisis of 2008, President Obama completely eliminated the middleman and fully implemented direct student loans (Kingkade). Although this stopped large banks from profiting off of government backed loans, it still didn’t reduce the supply of loans or the ease of obtaining them.

I have always personally thought that the cause of most financial crises is created by the governments and high executive. Most people do not know that white collar crimes occur every single day, but they are not exposed to the news because this type of crimes is not as important as any other crime such as a murder, robbery, and so on. However, the public gets rob on daily basics and the government allows it. This is the reason why only a few people got convicted during the 1990’s and 2008 crises. My best example of government victimization is by taking a look at the economy of countries like Venezuela, Cuba, and many others. In these countries, the economy is extremely bad for regular people; contrary to the people that hold a position

Our society seems to doing well since the financial crisis of 2008. The country is recovering from the Great Recession, unemployment is down and the global domestic product is up. People have jobs and are paying taxes. President Obama lowered our budget deficit and promised to make healthcare more available to all. On average, America is well on its way to recovery. But what about the people that slipped through the cracks of the financial stimulus plan? These are the people that lost their jobs, and subsequently their homes. These are America’s impoverished and homeless.

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).

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

“The 2007-8 stock market crash was largely due to widespread defaulting on subprime mortgages.” (The 2007-08 Financial crisis in review) In other words, towards the end of 2006, almost all borrowers defaulted. Instead of getting money, lenders got houses back, and put them again on sale. With the huge number of houses on the market, the supply was massively high, while the demand was low. Hence, the bubbles started bursting and the prices of the houses started declining

There is no smoke without fire. The global financial crisis caused from hundreds of thousands of decisions and changes from different areas. The America government, Wall Street and the Rating Agencies put on this world-shaking show together. And to be more specific, the top officials in politics and finance pull strings behind the senses. Applying Mintzberg’s ten management roles model as a frame, the America government, Wall Street and the Rating Agencies are correspondingly divided into three categories as interpersonal, decisional and informational.
Government is obviously and absolutely a leader for the people in the country. People count on their government and on the other side, every decisions government made, every bills Congress passed is closely related to people in the bottom. In the global financial crisis, government decided to deregulation and negligent to have contingency plan to protect country economics. Government deregulation in financial market had precedents back in last century. In 1981, the Reagan-administration was supported by economics and financial lobbies and started thirty-period financial deregulation. Later, the Reagan-administration also deregulated the savings loan company and allowed them using deposit money to do risk investment. But by the end of 80s, hundreds of company failed. It has been described to be the biggest bank robbery in the history at that time and it caused millions of people lost everything over one night. The

This chapter is about the background of 2007-2008 financial crisis. The 2007-2008 financial crisis has a huge impact on US banking system and how the banks operate and how they are regulated after the financial turmoil. This financial crisis started with difficulty of rolling over asset backed commercial papers in the summer of 2007 due to uncertainty on the liquidity of mortgage backed securities and questions about the soundness of banks and non-bank financial institutes when interest rate continued to go up at a faster pace since 2004. In March 2008 the second wave of liquidity loss occurred after US government decided to bailout Bear Stearns and some commercial banks, then other financial institutions took it as a warning of financial difficulty of their peers. In the meantime banks started hoarding cash and reserve instead of lending out to fellow banks and corporations. The third wave of credit crunch which eventually brought down US financial system and spread over the globe was Lehman Brother’s bankruptcy in August 2008. Many major commercial banks in US held structured products and commercial papers of Lehman Brother, as a result, they suffered a great loss as Lehman Brother went into insolvency. This panic of bank insolvency caused loss of liquidity in both commercial paper market and inter-bank market. Still banks were reluctant to turn to US government or Federal Reserve as this kind of action might indicate delicacy of