The Loose Noose : Failure Of Regulators

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The loose Noose: Failure of regulators On top of all these, the regulators went lax. They failed to regulate the subprime lending market, mortgage brokers (non-banking mortgage underwriters) and the derivatives like MBS were unregulated. SEC loosening the capital requirements for the five Wall Street banks and Federal government’s overriding the anti-predatory law acerbated the situation and made it convenient for I banks to tap the bottomless CDO market. The deadly spiral: Climax All these spiral has to end one day as it is built on a shaky foundation – lending to subprime borrowers. So, borrowers started defaulting on the payments in masses and real estate started flooding the market pulling the prices down. Several mortgage lenders…show more content…
The panic wave that started in the Wall Street passed into the main street as a credit crunch crippling the real economy. As the credit crunch situation became critical, companies started closing down operations and laying off people, the unemployment went up from roughly 4.5% in 2007 to about 10% in 2010 and the real GDP growth rate fell to about -3% around 2010 from a positive growth rate in the pre-crises period . Subprime to Eurozone Crisis The 2007 crisis in the US is not an isolated event. It had overarching effect across the globe. Stock markets across the globe collapsed. For instance, stock price in Germany fell by 7%, India by 7%, China by 5.1% in just one day in 2008 . The overleveraged positions of financial institutions owing to cheap credit demanded course correction of asset prices across various economies. Many of the EU countries had heavy exposures to the US subprime debt and this scenario became very evident post Lehman collapse. BNP Paribas had serious exposure to CDS of US subprime and several financial institutions across EU had heavy investments in US subprime debts. UK banks had to write down over USD 300 Bn and EU countries around EUR 500 to 800 Bn . This made the financial system of EU vulnerable and the subprime crisis later evolved into Eurozone crisis in EU area. Although, the Eurozone crisis is caused by several

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