The 2008 Financial Crisis

Housing inflation were inversely related to both foreclosure and delinquency rates. The rates dropped drastically over the years which led to increased house prices that almost collapsed the mortgage programs. As a result of the crisis in subprime mortgages, the Troubled Asset Relief Program (TARP) program was introduced in the beginning of October 2008 by the United State government that enabled the purchase of equity and as... ... middle of paper ... ...s that had surpluses back to the country. Works Cited Kaminsky, G., & Reinhart, C. (1999). The Twin Crises: The Causes of Banking and Balance of Payment Problems, American Economic Review, 89, (3), 473–500.

Bank of America and the Mortgage Crisis Sharply rising mortgage foreclosure rates during the economic recession between 2007 and 2009 have drawn a significant amount of attention from scholars and policy makers. There has been an abundance of research probing factors, particularly sub-prime lending and neighborhood characteristics, contributing to foreclosures (Li). The present paper, investigated causes of the mortgage disaster with relevance to Bank of America. Bank of America is one of the major financial institutions affected and is losing money in the industry. It is hypothesized that the bank and other financial institutions are still struggling in the industry, due to several reasons.

Because of this, consumer expenditure has suffered seriously and the situation has worsened financial crisis with the Americans watching the value of their valuable properties, their homes lose worth. The same experience has been observed in $1.5 trillion of securities supported by subprime and the same mortgages have constantly reduced in value resulting in the loss of capital for most banks at a faster rate than the rate at which the government is replenishing them as provided by the Troubled Asset Relief Program (TARP) (Laing, 2009). In an effort to find a solution for the crisis, treasury department proposed to urge the banks to provide low mortgages of about 4.5%. The step was view... ... middle of paper ... ... would afford a win-win situation for the government and the homeowner. Works Cited Armour, S. (2009).

2008); global imbalances between US the excessive consumption by depict and China the excessive saving by surplus fuelled the housing bubble and credit boom, it is closely connected with financial crisis (Obstfeld and Rogoff, 2009); misperception the risk of the subprime mortgage defaults; loose financial regulation that failed to control the standards in the mortgage market, and this point is supported by Crotty (2009) that regulators allow banks to hold assets off balance sheet without capital requirement to support them. After this introductory section, section 2 discusses the impact of recession on customer behaviour; section 3 presents an analysis on how does the recession affect the companies’ profitabilit... ... middle of paper ... ...une. Available at: http://www.tradewindsnews.com/weekly/w2009-06-26/article200083.ece5 (Assessed on: 30 November 2013) Vaitilingam, R., (2009). Recession Britain: Findings from Economic and Social Research. [Online] Available at: http://www.esrc.ac.uk/_images/Recession_Britain_tcm8-4598.pdf (Assessed on: 24 November 2013) UNCTAD, (2010).

In 2007, the U.S. fell into a deep financial recession. One of the main causes of this was the bursting of the housing bubble, which lead to a housing crisis. What is a housing bubble? A housing bubble is defined by Businessdictionary.com (n.d.) as a “temporary condition caused by unjustified speculation in the housing market that leads to a rapid increase in real estate prices. As with most economic bubbles, it eventually bursts, resulting in a quick decline in prices...if a housing bubble swells to an extremely high level, the aftermath of the burst may set the housing market back years” (businessdictionary.com).

H.R. 1424, the Emergency Economic Stabilization Act of 2008. In the wake of the United States 2008 financial crisis, the government became pressured to act and the federal government needed a way to help. In late 2008 HR1424, commonly known as the Emergency Economic Stabilization act, was proposed to congress, and signed by president bush. This legislation was a way to remove the burden from banks, whom during the mortgage crisis, came strained on resources and was not able to keep lending as their clients fell victim to foreclosure.

The complete loss of investor confidence impacted stock markets globally. Securities suffered large losses during late 2008 and early 2009. As the restrictions on credit gr... ... middle of paper ... ...factoidz.com/what-caused-the-great-recession of-20082009/>. Nabli, Mustapha K.. The Great Recession and developing countries: economic impact and growth prospects.

Furthermore, it became a worldwide phenomenon; “the way the debt was sold on to investors gave the crisis global significance. The US banking sector package sub-prime home loans into mortgage-backed securities known as CDOs (collateralised debt obligations). These were sold on to hedge funds and investment banks who decided they were a great way to generate high returns (and big bonuses for the oh-so-clever bankers that bought them). When borrowers started to default on their loans, the value of these investments plummeted resulting in huge losses for banks globally”, (timesonline.co.uk). As this was going on, consumers felt the effect of basic necessities prices increasing.

The basic cause of the financial crises falls collectively on debt and mortgage-backed assets. Since the Great Depression the property prices in the U.S. were always steadily incr... ... middle of paper ... ...t want more CDOs on their balance sheet in return. This panic caused the Crisis. These crises brought the global financial system to the point of collapse. The U.S. Federal Reserve took steps to expand money supplies.

“What is financial contagion?. International Finance 6: 157-78. Peliez, Carlos M. (November 2009). Financial Regulation after the Global Recession . [Online] Available at: http://www.palgraveconnect.com/pc/doifinder/10.1057/9780230251243.