¶ … institutional economics. When attachment proposal guidelines; I a 1,5-2-page proposal 3-page essay. I minimum 4 book resources. Maybe subject "effects oil cryisis 1973 institutions" "effects subprime mortgage crisis istitutions." The underlying causes of the crisis was represented by the issuing of subprime mortgages, with the aid of which people were able to purchase real estate properties they did not actually afford.
Institutional economics -- Essay proposal
The internationalized economic crisis is now the buzzword across the globe. The impacts it has generated are complex and dramatic, to include corporate bankruptcies or the loss of the population's savings. But aside from these generally accepted dimensions of the crisis, fact remains that the topics pegged to the crisis are more multifaceted and go beyond the impacts on the population and the economic agents. The impacts are as such also felt at the level of the institutions.
The proposal is then that of assessing the subprime mortgage crisis through different lenses -- those of the effects generated upon the institutions. Most of the effects are expected to be felt by the lending institutions -- both banking as well as non-banking institutions. But it is also believed that effects were manifested at the level of the state institutions, which would have been confronted with a new challenge -- that of preserving the stability of the national financial sector.
The following project would commence with the introduction of the topic of the crisis and its traditionally accepted impacts, to then move on to the more specific issue of the impacts felt by the institutions. At this stage, it would strive to assess the differentiated impact on the institutions specialized in subprime mortgages as opposed to the institutions which integrated more diverse offering.
In order to best respond to these issues, the project would rely exclusively on the specialized literature. The use of this research tool is advantageous as it creates a context in which the research is based on the findings of specialized researchers. The limitations are however pegged to the possibility of bias or the presentation of the situation through the specific lenses of each researcher and each research angle.
In order to reduce these shortages, the project would centralize information from eight different sources. This translates into a situation in which the data collected from one source is verified and validated by information in the rest of the sources. The information is as such retrieved from two different categories of literature research -- books and internet articles. The books are the more reliant sources of information as they are based on extensive research and they might also be peer reviewed, to as such present objective information. However, since the construction of the book is based on vast and complex information, internet articles are also used as they integrate more specific and clearly discussed topics related to the subprime mortgage and its impact on the institutions.
The research project proposed at this stage has a dual significance of efficiently centralizing information in the specialized literature as it is pegged to the subprime mortgage crisis. The second significance is that of introducing the reader to a less commonly discussed aspect of the modern day economic crisis. But aside from these benefits, the study is also marked by a limitation -- it bases its findings on secondary sources alone and does not conduct primary research to collect information. Such an endeavor would nevertheless be tedious and time consuming.
As all the relevant information is collected and edited, the project would come to an end with a brief paragraph concluding the research effort. This concluding effort would revolve around the restating of the most important findings of the essay.
Institutional economics -- The impacts of the subprime mortgage crisis on the United States institutions
The economic crisis initially materialized in a credit crisis, which gradually came to impact all sectors of business operations. Economic agents were forced to declare bankrupt or downsize, whereas the population lost their jobs and their savings. But aside from these impacts of the crisis, it has to be noted that the very issuing of the subprime mortgages generated an impact on the United States institutions. It is the scope of this project to assess these impacts.
The financial institutions are generically blamed for the crisis as they granted the subprime mortgages. But while this is undeniable, it is also true that the institutions were themselves impacted by the subprime crisis. A first impact was represented by the fact that people became unable to repay their loans. The banks and other financial institutions were as such presented with a situation in which their liquidities decreased. This in turn meant that their investment opportunities were decreased, as well as their very financial stability (Sturm, 2009).
These impacts were initially felt by smaller size and specialized institutions, with low levels of diversification and which implemented a poor subprime policy. These institutions were limitedly covered against the adjacent risks. The majority of these institutions was forced to close down or seek sustained assistance. In 2007, John Kiff and Paul Mills wrote:
"The subprime crisis has so far affected mostly banks with subprime-specialist subsidiaries and a number of specialty finance companies. Since mid-2006 such non-depository, poorly capitalized, representing about 40 per cent of 2006 subprime originators, have either closed down operations, declared bankruptcy, or been bailed or bought out" (Kiff and Mills, 2007).
Soon enough however, numerous financial institutions came to experience problems pegged to the subprime crisis (Tong, 2008). As their customers were unable to repay the loans, the institutions commenced to repossess the real estate properties in order to recover their money, but they were unable to sell them. Additionally, the real estate properties which could be sold, were traded at low prices, meaning that the institutions proved unable to recover the entire sum. This was the result of the massive devaluation of the real estate properties and resulted in the deepening of the liquidity crisis. In 2007 for instance, an estimated 1.3 million properties were up for foreclosure. By February 2008, the banking and non-banking financial institutions were estimated to have lost $170 billion (The Mortgage Market Watch).
Also, the liquidity problems were intensified by the social and economic problems encountered by the population. Found without jobs or with restricted household incomes, the American population spent less. This trend was also obvious at the level of the economic agents.
"This led to a trickle up effect on the larger financial sector as banks and financial institutions experienced liquidity problems owing to rising defaulting mortgages and decreased consumer spending causing a severe deleterious effect on the economy" (Mhatre).
But aside from the economy and the reactions of the population, the lending institutions were also impacted by the legislations. In the aftermath of the subprime crisis, the United States government developed and implemented more restrictive laws. They for instance increased the minimum reserves required for banks and they incremented the interest rates (Ashcraft). This led to a situation in which the access of the population -- private and corporate -- to financial resources was restricted. Additionally, as the interest rate increased, the population became less able to repay its loans and the defaults followed a sustained ascendant path, to further deepen the problems of institutions (Mimoun, 2010).
The response of the state institutions was immediate and they acted in a means to restore balance in the national financial system. At a federal level, the impact was that of the increased need to allocate resources in order to bailout the financial institutions and prevent the collapse…
The underlying causes of the crisis was represented by the issuing of subprime mortgages, with the aid of which people were able to purchase real estate properties they did not actually afford.
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