The Impact of a threat of a credit default. The financial crisis 0f 2007-2008 is widely considered to be the worst financial crisis since the great depression. The effects of the financial crisis were cataclysmic it resulted in companies going under, others getting bailed out by the government and the stock market taking a nose-dive which led to a domino effect of recessions and bail outs around the world. The warrant for the financial crisis of 2007 was motivated by the subprime mortgage crisis. There was an increase in subprime lending which started in the early 1990’s and by 2007 all these loans totaled 1.3 trillion dollars which accounted for 20 to 25 percent of the u.s. .Housing market. During 2007 approximately around 6 million home owners could not meet there loan obligations. Borrowers took out loans that had a adjustable rate mortgage conjecturing they would buy a home with all debt financing then sell it in a couple of years assuming the housing prices would spiral up.The banks financed these loans using CDO’S and morgatge backed securities then selling these assets to other financial intermediaries letting the banks be the conciliator of these risky loans packaged into credit instruments.All though these loans were given out to grow and boost the economy it did the inverse. “How does a credit crisis begin? The basic structure of a credit crisis is excessive liquidity leads to excessive lending which leads to excessive leverage which leads to excessive-risk taking. The result of this equals tremendous spread tightening that leads to a credit bubble that will eventually burst. This cycle is inspired by the government’s lax laws on borrowing money. Even though people should worry about deflating the bubble. The start of th... ... middle of paper ... ... the most epic interventions in matters of business. The executives of both companies Freddie and Fannie were fired. They also issued senior preferred stock and common stock totaling 79.9 percent of each company. The value of the stock prior to the governments take over was greatly deflated by the government’s policy to pause the distribution of dividends on previous shares in order to preserve the value of the company debt and mortgage backed securities .After the turmoil of both Fannie mae and Freddie mac the government started to sue banks for their recklessness in underwriting mortgages.Also the government has been sued by the shareholders for allowing fannie mae and Freddie Mac for operating in a reckless manner that would not allow them to receive their dividends and by making the management of Fannie and Freddie to sign over there companies to the government.
In this essay, the author
- Explains that credit derivatives shift credit risk from one borrower to another debt holder or corporation. they are tied to a reference entity or reference obligor.
- Explains the concept of cdos in the 1980's by a bank called salomon brother by securitizing the loans and converting them to bonds.
- Explains that the housing market was coming down but inflation was going up and the u.s. central banks tried to combat the rising inflation by increasing interest rates.
- Explains that credit derivatives shift credit risk from one borrower to another debt holder or corporation. they are tied to a reference entity or reference obligor.
- Explains the concept of cdos in the 1980's by a bank called salomon brother by securitizing the loans and converting them to bonds.
- Explains that the housing market was coming down but inflation was going up and the u.s. central banks tried to combat the rising inflation by increasing interest rates.
- Explains that cdo traders operate separately from the bank and their job is to make sure the credit quality of the securities doesn't change.
- Analyzes how the 2008 financial crisis punched the banking sector right in the gut, causing banks to harvest huge losses.
- Explains how aig was hit the hardest by the financial crisis. it had to pay out insurance claims and restore its collateral losses.
- Analyzes how the feds and the treasury department have loaned out more money to aig, sending shock and panic throughout the world that the biggest insurer needed to be rescued.
- Explains that the government owned aig's role in the financial crisis. other banks like fannie mae and freddie mac were rescued by a federal takeover.
- Explains that the increase in riskier loans and mortgage backed securities was inspired by the amplified earnings that were achieved from a unique refinancing boom.
- Compares ginne mae to freddie mac and fannie mae, which is under full ownership of the department of housing and development.
- Analyzes how the treasury department and the federal reserve took action to inspire confidence in the government sponsored agencies.
- Explains that fannie mae and freddie mac were the foundation of the housing market that was collapsing.
- Explains that the treasury's order to give funds for keeping fannie mae and freddie mac afloat was limited to the sum of debt that government can give by law.
- Explains that the financial crisis of 2007-2008 was cataclysmic and was motivated by the subprime mortgage crisis.
Harness the Power of AI to Boost Your Grades!
Haven't found what you were looking for? Talk to me, I can help!
Related
- explanatory
- analytical
- opinion
- The Cause Of The Two-Thousand-Eight Financial Crisis?explanatory essayThe first main cause of the Two-Thousand-Eight financial crisis was the eruption in the housing sector in the United States that spiked in the years of Two-Thousand Five and Six. Because of this, there were high cases of defaults on adjustable and subprime mortgage rates. Therefore, banks
In this essay, the author
- Explains that the two-thousand-eight financial crisis is ranked as the worst financial disaster since the great depression. it started in the united states and spread to other parts of the world.
- Explains that the two-thousand-eight financial crisis was caused by the housing sector in the united states.
- Explains that the second cause of the two-thousand-eight financial crisis was due to lower-quality subprime lending by financial institutions.
- Explains that the two-thousand-eight financial crisis is ranked as the worst financial disaster since the great depression. it started in the united states and spread to other parts of the world.
- Explains that the two-thousand-eight financial crisis was caused by the housing sector in the united states.
- Explains that the second cause of the two-thousand-eight financial crisis was due to lower-quality subprime lending by financial institutions.
- Explains that the federal reserve reduced the federal fund rates to 1.0% from the previous rate of 6.5% in the years leading to the two-thousand-eight financial crisis.
- Explains that the two-thousand-eight financial crisis had a major impact on not only the american economy but the world economy as well.
- Explains that the financial crisis was responsible for the bankruptcy of more than 100 mortgage lenders in the united states.
749 wordsRead More - The 2008 Economic Collapseanalytical essay"How to Fix the U.S. Financial Crisis." Scientific American Global RSS. N.p., n.d. Web. 15 May 2014.
In this essay, the author
- Opines that the 2008 economic collapse was the final building block towards a more structural society, political system, and government in the united states of america.
- Explains the causes of the 2008 economic collapse, but only a few really dealt the damage. sub prime mortgages backfired on banks across the nation resulting in huge financial losses.
- Explains how to fix the u.s. financial crisis. scientific american global rss.
- Opines that the 2008 economic collapse was the final building block towards a more structural society, political system, and government in the united states of america.
- Explains the causes of the 2008 economic collapse, but only a few really dealt the damage. sub prime mortgages backfired on banks across the nation resulting in huge financial losses.
- Explains how to fix the u.s. financial crisis. scientific american global rss.
- Analyzes usa today's "timeline: key events in financial crisis." gannett, 09 sept. 2013.
- Analyzes how the 2008 economic collapse caused the american political economy to grow, strengthen, and reinforce the future.
599 wordsRead More - Essay On The Irish Crisisexplanatory essayFirst, let’s focus on the US crisis and the main reasons behind it. The problem began when banks started to issue ‘Ninja Loans’. These were loans that anybody could take out and they didn’t require you to have a job, assets or any type of income. They were offered on teaser rates that jumped by up to 2%. The main issue with these loans was that they were non-recourse, that is, the banks couldn’t chase the owners for money. They only had the house as a security and this made it very easy for people to walk away fr...
In this essay, the author
- Explains that both the us and ireland have experienced huge economic downturns in the past decade. the us crisis was largely due to subprime mortgages and mortgage-related securities defaulting between 2006 and 2008.
- Explains that the us crisis began when banks started to issue 'ninja loans', which were non-recourse loans that were offered on teaser rates that jumped by up to 2%.
- Explains that banks lended carelessly as these loans moved off their balance sheets once they were securitized, which allowed them to lend more. investors could take out credit default swaps to protect against these mortgage bonds from defaulting.
- Explains that both the us and ireland have experienced huge economic downturns in the past decade. the us crisis was largely due to subprime mortgages and mortgage-related securities defaulting between 2006 and 2008.
- Explains that the us crisis began when banks started to issue 'ninja loans', which were non-recourse loans that were offered on teaser rates that jumped by up to 2%.
- Explains that banks lended carelessly as these loans moved off their balance sheets once they were securitized, which allowed them to lend more. investors could take out credit default swaps to protect against these mortgage bonds from defaulting.
- Explains that the irish crisis occurred after strong economic growth between 1994 and 2002. property prices were rising strongly and in 2002 ireland joined the euro.
- Explains how the introduction of tracker mortgages and interest-only loans resulted in an increase in credit availability. from 2000 onwards, the government did nothing to try to control it.
- Explains that the us financial crisis was caused by loose lending in mostly financial markets based on derivatives and mortgage loans, while the irish crisis caused excessive borrowing from banks with too much money.
581 wordsRead More - Economics Q & Aopinion essayThe current recession or financial crises began in United States of America and created a domino effect of creating instability in the financial markets the world over; the spark of this recession ignited fire around December 2007. Our current financial crisis is also known as sub-prime mortgage crisis and it occurred because of reckless practices of giving out loans, without backing them with security or collateral. Obviously this credit bubble that had been blown by investment and commercial banks primarily popped when loans started going bad and risky borrowings got exposed. The fall of Lehman Brothers was a major blow as it created a situation of panic. This was also accompanied by a fall in house and share prices.
In this essay, the author
- Explains that return on common equity (roe) is the ratio of a firm's net income to its equity. it tells investors if they are investing at the right place.
- Explains that the analysis of financial statements can be used to describe the relationship between two phenomena such as the effect on household income due to the introduction of a few new developmental projects by the governments.
- Cites mearns, e. (2010, march 17). uk new car sales and recession.
- Explains that return on common equity (roe) is the ratio of a firm's net income to its equity. it tells investors if they are investing at the right place.
- Explains that the analysis of financial statements can be used to describe the relationship between two phenomena such as the effect on household income due to the introduction of a few new developmental projects by the governments.
- Cites mearns, e. (2010, march 17). uk new car sales and recession.
- Opines that the current recession is the longest since the great depression in the 1930's.
- Compares three evaluation methods relative to the decision-making process to create financial value. profitability is the main determinant of the result of its policies and decisions.
- Explains that a firm can compare its figure by the industry average to assess its performance. if its ratio is low, it can judge that most probably its costs are very high and so it needs to increase its efficiency and operations.
- Explains that econometrics is a quantitative analysis of economic theories through the use of inferential statistics and mathematics.
1023 wordsRead More - The Danger of Technology and Industrializationexplanatory essayA financial crisis is usually a summation of events, including substantial variations in credit volume and asset prices, brutal disruptions in monetary intermediation and the need for support from the government. Financial crises are usually prefaced by asset and credit growth which later results into busts. The macroeconomic and monetary effects are usually severe. Huge output losses are frequent to many crises while extra macroeconomic variables record major declines (Cafruny & Schwartz 2013).
In this essay, the author
- Analyzes how industrialization and technology have made the world almost inhabitable, posing dangers to humans and other inhabitants. fast-growing inventions, innovations and unhealthy industrial competition between countries have led to many global problems.
- Explains that the 2007-09 world financial crises have been a persistent reminder of the many-sided nature of disaster.
- Explains that the europe financial crisis hard hit asian tigers like singapore and taiwan that heavily depend on exports to european countries.
- Analyzes how industrialization and technology have made the world almost inhabitable, posing dangers to humans and other inhabitants. fast-growing inventions, innovations and unhealthy industrial competition between countries have led to many global problems.
- Explains that the 2007-09 world financial crises have been a persistent reminder of the many-sided nature of disaster.
- Explains that the europe financial crisis hard hit asian tigers like singapore and taiwan that heavily depend on exports to european countries.
- Explains that financial crises are usually a summation of events, including substantial variations in credit volume and asset prices, brutal disruptions in monetary intermediation and the need for support from the government.
- Explains that there has been a challenge in predicting and timing of crises. monetary markets with high influence are easily subject to crisis, making uncertainty the major reason why the precise timing is hard to forecast.
- Explains that global warming is caused by a rise in the greenhouse effect, which is brought about by rising levels of greenhouse gas emissions.
- Explains that the recent disastrous climatic events like the immense floods in pakistan and india, the hurricane katrina in the united states and the extended drought in australia, china, pakistan, and texas are all the consequences of amplified temperatures due to global warming.
- Explains that global warming has risen the strength of precipitation occurrences over recent years. for instance, venezuela saw its utmost monthly rainfall in 100 years with huge landslides and flooding that led to the demise of 30,000 people.
- Explains that insects pests are spreading to forest areas where in the past were too cold for endurance. the rise in sea levels has been caused by global warming.
- Explains that global warming and global financial crisis have led to massive economic disabilities at both micro and macro levels.
754 wordsRead More - The Global Financial Crisisexplanatory essayFinancial crisis and resulting worldwide depression has at the present moved from containing the infection to precise actions designed at promote improvement and altering policy to stop to reoccurrence of the trouble. There are many financial experts says that the improving economic and financial position might reason rigid improvement of the monetary scheme to be unable to find some grip the crowded policy. “Financial market a place or channel for buying or selling stocks, bonds, and other securities” (O’BRIEN, 2011). Financial market encourage the wide-ranging security of the country at the same time as caring taxpayer interests and facilitate business operation with no creating a ethical risk. For example the New York stock exchanges if people want to hold a share of stock in Microsoft or apple they have own security because they can sell that share in the stock market. In the other hand if people want to check account at Citibank or Wels Fargo, they check account because this is an asset this is not a security. “Financial intermediary a financial firm, such as a bank, that borrows funds from savers and ends them to borrowers” (O’BRIEN, 2011). The worldwide financial crisis brew for a while, actually happening to confirm its consequence in the middle of 2007, approximately the globe stock markets have fallen, big financial institutions have collapsed or been bought out, and governments in still the wealthiest nations have had to move toward up by means of save packages to provide security for their monetary system.
In this essay, the author
- Explains that financial crisis and resulting worldwide depression has moved from containing the infection to precise actions designed at promote improvement and altering policy to stop to reoccurrence of the trouble.
- Explains that the global financial crisis is played out on two levels: the first is with the industrialized nations of the globe where the majority of sufferers from subprime mortgage debt, unnecessary leveraging of reserves, and insufficient capital support credit default swap.
- Analyzes how financial institutions provide services as intermediaries of financial markets, making easy the run of funds throughout the economy. lehman brothers file for bankruptcy defense after the federal reserve and the treasury department refused to security the company.
- Explains that financial crisis and resulting worldwide depression has moved from containing the infection to precise actions designed at promote improvement and altering policy to stop to reoccurrence of the trouble.
- Explains that the global financial crisis is played out on two levels: the first is with the industrialized nations of the globe where the majority of sufferers from subprime mortgage debt, unnecessary leveraging of reserves, and insufficient capital support credit default swap.
- Analyzes how financial institutions provide services as intermediaries of financial markets, making easy the run of funds throughout the economy. lehman brothers file for bankruptcy defense after the federal reserve and the treasury department refused to security the company.
- Explains that the federal government's response to the 2007-2009 financial crises highlights that government financial regulations typically occur in response a crisis.
- Explains how financial markets take on a life of their own. financial markets involve peoples and entities dealing with financial securities, commodities, and extra fungible matter of worth.
- Explains that firms can be satisfied by an increase in the velocity of circulation as firms issue new securities through the financial markets.
- Explains that the northern rock's liquidity problem became serious because of securitization vehicles and short-term debt instruments. the bank became worried about potential counterparty risks and reputation risks.
- Explains that when the likelihood of a government bailout is low, banks in emerging markets behave more prudently, which in turn reduces moral hazard.
- Explains allen, i., the age of financial integration, in l. allen, the global f inancial.
- Explains that financial liberalization promotes transparency and accountability, reducing adverse selection and moral hazard problems.
- Describes das, d. k., mezzadra, a. f. and o’brien, r. g.
- Cites carney, m. and mishkin, f. (2001a) financial policies and the prevention of financial crises in emerging market countries.
2369 wordsRead More - Money, Power, and Wall St.explanatory essayMany of the “Elite” financial figures could not give a definite answer about why this crisis occurred as well as stated by many of the people interviewed, “We don’t know how it happened.” Many young brokers working for JP Morgan back in the middle of the 90’s believed they could come up with a way to cut risk, credit derivatives. Credit Derivatives are just a way of using other methods to separate and transfer risk to someone else other than the vender and free up capital. They tested their experiment with Exxon Mobile who were facing millions of dollars in damage for the Valdez Oil Spill back in 1989 by extending their line of credit. This also gave birth to credit default swaps (CDS) which a company wants to borrow money from someone who will buy their bond and pay the buyer back with interest over time. Once the JP Morgan and Exxon Mobile credit default swap happened, others followed in their path and the CDS began booming throughout the 90’s. The issue was that many banks in...
In this essay, the author
- Explains that the pbs frontline documentary money, power, and wall street gives the audience a little history about the causes of the great recession.
- Explains that credit derivatives are a way of using other methods to separate and transfer risk to someone else. many banks involved in credit default swaps did not want the public how much risk they were taking.
- Explains that the american people were divided politically in the aftermath of the 2008 financial crisis. the tea party, occupy wall st., and the police received attention.
- Explains that the pbs frontline documentary money, power, and wall street gives the audience a little history about the causes of the great recession.
- Explains that credit derivatives are a way of using other methods to separate and transfer risk to someone else. many banks involved in credit default swaps did not want the public how much risk they were taking.
- Explains that the american people were divided politically in the aftermath of the 2008 financial crisis. the tea party, occupy wall st., and the police received attention.
- Explains that confidence was very important during lehman brothers' fall, and that obama chose geithner to fix wall st.
- Explains that wall st. and the banks were greedy and that greed fueled their fire to keep investing in default swaps and synthetic cdos. citi urged president clinton to repeal the glass-stegal act
819 wordsRead More - The Global Financial Crisisopinion essayThe global economic crisis beginning mid-2007 was and still is an unsettling event in the history of the world economy. But politicians today, and in fact, many major corporations of the world have found that it was beneficial simply to ignore it. But in October 2011, the world saw one of the largest uproars ever seen in the face of the economic crisis. From New York to Rome, the public voiced dissatisfaction with government policy fueled by the worst financial crisis since the Great Depression of 1930. Called “Occupy Wall Street”, the movement drew the attention of the media the world over. But what are the causes of the global financial crisis? How did we, or our governments, let it happen?
In this essay, the author
- Explains that the global economic crisis began mid-2007 and still is an unsettling event in the history of the world economy. in october 2011, the public voiced dissatisfaction with government policy fueled by the worst financial crisis since the great depression of 1930.
- Analyzes how the protesters in london blame the banking industry for the subprime mortgage market. they blame their government for "bailing out the bad guys".
- Opines that in the 1990s and early 2000s specialists in financial fields had been highlighting these issues, but no-one wants to hear a word of inevitable doom.
- Explains that the global economic crisis began mid-2007 and still is an unsettling event in the history of the world economy. in october 2011, the public voiced dissatisfaction with government policy fueled by the worst financial crisis since the great depression of 1930.
- Analyzes how the protesters in london blame the banking industry for the subprime mortgage market. they blame their government for "bailing out the bad guys".
- Opines that in the 1990s and early 2000s specialists in financial fields had been highlighting these issues, but no-one wants to hear a word of inevitable doom.
- Opines that the united states saw its way out of the great depression thanks to world war ii, but many agree that it is not worth a war to boost an economy.
- Opines that the solution doesn't lie on internal administration. by trying to focus on our own nation, we have only incurred more debt, dooming us from future economic success.
- Explains that zoellick embraces "multi-polar world economy." ips inter press service. global financial crisis — global issues.
461 wordsRead More - Financial Crisisanalytical essayAccording to Kunt et al. (2011:240) financial crisis is an event in which substantial losses at financial institutions and/or failure of these institutions cause, or threaten to cause, dislocations to the real economy, measured in terms of output foregone. Global capital markets pose the same kinds of problems that jet planes do. They are faster, more comfortable, and they get you where you are going well. But the crashes are much more spectacular. Financial crisis has put a mass hindering thin route on the actual economy, labour markets and the profound mental layers of society, even as some fraction of the world economic elites act as if nothing has occurred.
In this essay, the author
- Opines that the international financial crisis: have the rules of finance changed?
- Argues that the dual crisis of information and capital that is leaving an imprint on the first decade of this century is paving a new geopolitical space.
- Explains that china, india, brazil and south africa have developed the capability to foster global mediation and decision-making, and in doing so, construct a new second world.
- Opines that the international financial crisis: have the rules of finance changed?
- Argues that the dual crisis of information and capital that is leaving an imprint on the first decade of this century is paving a new geopolitical space.
- Explains that china, india, brazil and south africa have developed the capability to foster global mediation and decision-making, and in doing so, construct a new second world.
- Argues that global knowledge-based industrialization cannot be governed by financial industries, but needs a systemic authority to provide equally sophisticated and regionally differentiated governance.
- Opines that society as a whole will turn into an intermediary power in the world community.
- Analyzes how geo-regionalism has become the main structural trend, following the breakdown of the bipolar world.
- Opines that the geo-regional dynamic needs an appropriate infrastructure which is already on the scope for india, brazil, south africa, and china which has already been implemented.
- Argues that geo-regional separation and division of power between financial and infrastructural regimes must be experienced at the level of society.
1421 wordsRead More - Activity and Structure of Financial Intermediariesexplanatory essayO'Driscoll, G., Jr. (2009). The financial crisis: Origins and consequences. Intercollegiate Review, 44(2), 4-12. Retrieved from http://www.isi.org
In this essay, the author
- Explains that there are various financial intermediaries within the financial industry. they will discuss commonalities and differences between the operating activities of securities firms and depository institutions.
- Explains that both depository institutions and securities firms act as intermediaries as they provide retail services to their customers. commercial banks make loans for consumers, while savings institutions specialize in residential mortgages.
- Explains that depository institutions accept deposits from their customers to make various types of loans, while securities firms are paid fees to perform services for customers.
- Explains that there are various financial intermediaries within the financial industry. they will discuss commonalities and differences between the operating activities of securities firms and depository institutions.
- Explains that both depository institutions and securities firms act as intermediaries as they provide retail services to their customers. commercial banks make loans for consumers, while savings institutions specialize in residential mortgages.
- Explains that depository institutions accept deposits from their customers to make various types of loans, while securities firms are paid fees to perform services for customers.
- Explains that depository institutions require funding from customer deposits to create loans, whereas securities firms produce profits without the requirement of an investment in assets.
- Explains that balance sheets contain an organization's assets, liabilities, and equity as of a specific date (ex. may 31, 2010).
- Explains that depository institutions are those that obtain funds from deposits made by customers. they include commercial banks, credit unions, and savings institutions.
- Explains that commercial banks take in deposits from consumers and make personal, commercial, and property loans. the assets on their balance sheet typically include the various loans they make and a significant amount of investment securities.
- Explains the liabilities of commercial banks are made up of deposits from consumers and other borrowed funds. borrowed funds not associated with deposits can include funds obtained through repurchase agreements or purchases of federal funds
- Explains that commercial banks retain very little equity, but regulations require capital requirements to offset losses from on- and off-balance-sheet activities. commercial banks' equity is mostly in the form of common and preferred stock, surplus or additional paid-in capital, and retained earnings.
- Explains that credit unions are depository institutions that operate under a non-for-profit status. they provide their members with lower rates on loans and higher deposits.
- Explains that credit unions' assets are similar to those of commercial banks though they have smaller balances. saunders & cornett (2011) noted that more than one-fourth of all assets were small consumer loans.
- Explains the liabilities of credit unions consist of member deposits, with the majority being cds in 2009. credit union equity is often higher than equity of other financial intermediaries as funds are retained within the institution.
- Explains that savings institutions provide services comparable to commercial banks. they take in consumer deposits and make loans but are grouped differently as they focus more on providing residential loans.
- Explains that the majority of liabilities are made up of deposits followed by funds borrowed from the federal home loan banks (fhlb). equity on the balance sheet of savings institutions was slightly lower than equity in commercial banks.
- Explains that securities firms specialize in retail services such as the purchase, sale, and brokerage of existing securities. their balance sheet includes receivables, long positions in securities and commodities and reverse repurchase agreements.
- Explains that insurance companies provide protection against events that can be financially damaging. life and property-casualty companies offer protection for a fee; their balance sheets are slightly different.
- Explains that life insurance companies offer various products that provide individuals and their beneficiaries to protect against losses in income through premature death or retirement.
- Explains that property-casualty insurers sell various insurance products to protect real property, personal possessions, and legal liability. assets include long-term securities like bonds and stocks.
- Explains that the securities and exchange commission was created as part of financial reform at the peak of the great depression in an attempt to restore investor confidence.
- Explains that financial intermediaries utilize their balance sheet to manage and monitor their assets, liabilities, and equity. while no two balance sheets will ever be alike, there are some similarities and differences.
- Explains that finra encourages an efficient working market through its monitoring, disciplining, and educating duties. it scrutinizes every trade and broker to ensure compliance with the laws.
- Explains that adrian, shin, and rice, t. (2011). financial intermediary balance sheet management. annual review of financial economics, 3, 289-307.
- Explains the financial industry regulatory authority (finra) and navy federal credit union.
1853 wordsRead More