Crisis 2008 a Plethora of

¶ … Crisis 2008 A plethora of factors exist as to the cause of the financial crisis in the United States that characterized most of 2008 and the subsequent years. Most of these factors are traceable to the 2001 economic recession that resulted in part because of the dot com bust.

The most eminent of the factors to account for the 2008 crisis are the subprime mortgage crisis, the inordinately low interest rates (which were largely determined and sanctioned by the federal government, and various acts of imprudence by a number of banking intuitions throughout the country. In attempts to stimulate the economy following the 2001 recession, the federal reserve systematically lowered its lending rates to figures that were extraordinary -- and as low as three or four percent. These low rates directly affected the subprime housing crisis.

Sub-prime rate loans are those that are given to people who are in some way deficient of meeting the criteria for conventional loans. Either they put no money down to purchase property, or have substandard credit scores, or are unable to verify their income and assets (Davis, 2008).

Yet due to the minute interest rates that were determined by the Federal Reserve, these people could afford to make monthly payments even though the loans they were incurring presented a substantial risk to the lending institutions -- banks -- and to the global economy as a whole, as it turns out (Shah, 2010). Other governmental entities played a role in fueling the subprime housing crisis.

Lending institutions such as Fannie Mae and others encouraged banks to issue loans to people who represented a considerable risk in not being able to repay them. These risks were actualized in 2005 and 2006 when the property values could go no higher without people paying their mortgages -- and the real estate crisis that is just now beginning to make a recovery ensued.

It was this housing crisis that eventually reciprocated to the lending institutions that caused it by disseminating loans -- which were encouraged by the Federal Reserve and other governmental entities -- when they felt the effects of the shortage of remuneration from lenders in 2008. Another significant factor that affected the financial crisis of 2008 was role that Wall Street played in worsening the impact of the financial disaster that was to come.

Specifically, a number of prominent Wall Street companies effectively "bought in" to the housing shortage by investing in securities that are financially supported by loans of a dubious nature. A recent report compiled by the Financial Crisis Inquiry Commission alludes to the fact that such investors were well aware of the substantial risk that these investments represented, yet pursued them anyway due to avaricious tendencies (Chan, 2011).

The involvement of banks in the financial crisis goes well beyond issuing loans that were of a suspect nature to people who required subprime loans. To that extent, this degree of culpability on the part of banks can actually be traced to the Securities and Exchange Commission, another federal government entity, that was decidedly lax about the requirements of banks during these hazardous lending times. More stringent measures, such as requiring banks to have more capital on hand.