Sign Up Now
Get instant access to over 1 million+ study documents
OR
Already registered? click here to login
By creating your account, you agree to our terms of service, privacy policy and student honor code.
Global Financial Crisis
There were a number of causes to the global financial crisis of 2007-2009. Baily, Litan and Johnson (2008) argue that there were numerous contributing factors, including the perception of a low risk U.S. housing market, securitization of the housing market, credit rating agencies, and the spread of these securities to financial institutions around the world. The primary contagion came from the United States, beginning in 2007, but there were contributing factors in many European countries as well.
housing market entered a bubble state, with rapidly increasing prices. This was the result of changes to the way that mortgages were financed, bringing more and riskier consumers into the housing market. This in turn fuelled speculators. Banks were able to securitize risk from the housing marketing. In complex transactions they were able to offload much of the risk onto other financial institutions around the world. Credit rating agencies, lacking a clear understanding of the products, rated them as secure investments. These "secure" investments offered returns much higher than investments of similar "security," but of...
However, they had become popular investment items for banks around the world as the result of their apparent security. This is what made the crisis global in nature, rather than just an American problem -- banks all over the world were buying these securities. Baily et al. (2008) noted that risk management was poor. In countries where banks exercise proper risk management -- Australia and Canada notably -- the economic crisis was nowhere near as intense.
Tridico (2012) explains what happened next. With uneven income distribution, the increase in consumer credit represented by the new mortgage market in the U.S. was unsustainable, and inevitably it began to collapse shortly after the U.S. Federal Reserve increased interest rates -- most mortgages were on floating terms with low introductory rates. This resulted in a dramatic increase in mortgage defaults, threatening the supposedly secure mortgage-backed securities. Banks heavily invested in these securities, such as Lehman Brothers, went bankrupt, causing a mass crisis of confidence in the entire financial system, and this crisis of…
References
Baily, M., Litan, R. & Johnson, M. (2008). The origins of the financial crisis. Brookings Institute. Retrieved March 31, 2014 from http://www.brookings.edu/~/media/research/files/papers/2008/11/origin%20crisis%20baily%20litan/11_origins_crisis_baily_litan.pdf
Elliott, L. (2011). Global financial crisis: Five key stages, 2007-2011. The Guardian. Retrieved March 31, 2014 from http://www.theguardian.com/business/2011/aug/07/global-financial-crisis-key-stages
The Economist. (2013). Crash course. The Economist. Retrieved March 31, 2014 from http://www.economist.com/news/schoolsbrief/21584534-effects-financial-crisis-are-still-being-felt-five-years-article
Tridico, P. (2012). Financial crisis and global imbalances: Its labour market origins and the aftermath. Cambridge Journal of Economics. Vol. 36 (1) 17-42.
Edgar Hoover, makes public its continuing investigation into the activities of black nationalist organizations, singling out the Black Panther Party in particular, Hoover viewing the group as a national security threat. January 05, 1970 Blacks Move Out of Inner Cities: The Bureau of Census statistics show as the quality of life in poverty-stricken urban communities worsens, a continuous stream of middle-class blacks escape to higher-income neighborhoods and suburbs. February 13, 1970 First Black
Financial Crisis and Its Implications: Events Occurring Between 2007 and 2009 A Critical Literature Review The Roots of the Crisis Real Estate Valuation Bubble Sub-Prime Mortgages Low Interest Rates Moral Hazard in Regard to Consumer Spending Packaging Real Estate Loans as a Commodity (Derivatives) Market Interrelatedness Future Implications The financial crisis, which seemed to be elevated to its greatest extent world-wide between the years 2007 and 2009, is difficult to unravel. The causes, interlink-ages, and effects are so intertwined that
But amid the celebration, crucial opportunities have been lost: In September 2009, the "inspector general for the Troubled Asset Relief Program, a k a, the bank bailout fund, released his report on the 2008 rescue of the American International Group, the insurer. The gist of the report is that government officials made no serious attempt to extract concessions from bankers, even though these bankers received huge benefits from the rescue.
Demand-Side Policies and the Great Recession A recession can be delineated as a substantial deterioration in activity across the economy that persists for a period exceeding a few months. This significant decline can be perceived in business production, employment, real income, and retail trade (Investopedia, n.d). Fiscal policy refers to the use of government expenditure and taxation to regulate the aggregate level of economic activity. On the other hand, monetary policy
The Subprime Crisis There were a number of factors that led to the subprime crisis: Fannie Mae, Countrywide Financial, the Federal Reserve, Moody’s, Merrill Lynch, Bear Stearns, Goldman Sachs, AIG, Michael Burry, who shorted the mortgage backed securities being sold to investors that were full of subprime—and guys like him (the ones depicted in Michael Lewis’s The Big Short)—they all had a role to play in the subprime crisis of 2007-2008
"Construction -- which was a substantial component of investment -- fell because the housing stock exceeded the demand after 1925. " (Temin 9) Termin goes on to say that Consumption fell because wages, other income, and capital gains all fell, with the fall in wages having the largest effect. Business investment fell because profits fell and -- to a lesser extent -- because the yield on equities rose. Residential construction