This large number of defaulted and unpaid loans sucked up tons of capital and made many of the real estate assets that the investment banks held toxic. Schiff’s book describes this unfortunate chain of events as the “Hut Glut”. They created a syst... ... middle of paper ... ... deemed “too big to fail” because it wouldn’t truly send the economy in a free fall if went under because of how much it was involved in. Also, another huge blow was dealt when credit froze. Credit has to power to both build and destroy an economy.
Investment banks were left with hundreds of billions of dollars in loans due to the fact the market for CDOs collapsed. Two major investment banks such as Lehman Brothers and Bear Stearns were out of business in 2008. As a result, American spending declined, foreclosures dramatically increased, and substantial decreased in personal wealth. Many financial organizations conducts unethical business practices because they failed to respect human dignity, in the sense that such behavior hinder the moral privileges of other human beings.
Over speculation is another main factor in the collapse of the stock exchange therefore it cannot be said that the governments laissez-fair attitude is solely to blame. There are many other factors which add to the over speculation and cause the collapse. Some banks chose to buy stocks u... ... middle of paper ... ...ernment could have prevented the collapse of the stock exchange but they were unable to because they did not act soon enough due to their laissez-fair attitude. The collapse of the stock exchange was due to many factors that built up and originated during the roaring twenties. There was a lot of over speculations which lead to a lot of people taking out loans and not being able to pay back, including banks that used up the money that had been deposited to them.
(New York Stock Exchange) This investment was hoping that people could make a profit and repay the loans they made. But just as one would expect, events didn’t unfold as planned. When the stocks ended up crashing, people were completely out of money, and had nothing to give to repay the banks, which were also in need of money. The crashing of the stocks was a pivotal moment, and eventually led to the Great Depression In the 1920s Americans naively believed that the economy... ... middle of paper ... ...n, was one of the most traumatic events The United States has endured. With the deadly combination of faulty investments, false assumptions of prosperity, and naive economic decisions, America was plunged into a depression.
There was absolute chaos when people heard that the stock market had crashed, which led to bank runs. People did not trust banks anymore and wanted to get their money so they could make sure their money was in safe hands. When one of the first bank runs occurred in Nashville, Tennessee, this kick started a movement of bank runs. The banks only carried a portion of the depositor’s money and would provide the rest to borrowers. So when people came to the banks for their money, the banks did not have all of it.
The financial crisis otherwise known as the ‘credit crunch’ of 2007 to the present was triggered by a liquidity shortfall in the US banking system. Hamid Varzi said “The US economy, once the envy of the world, is now viewed across the globe with suspicion.” It has resulted in the bailout of banks by national governments, the downturns in stock markets around the world and the collapse of large financial institutions. It has also affected the property markets severely resulting in many evictions and foreclosures. Many economists have even considered it to be the worst financial crisis since the Great Depression in the 1930s. The crisis has contributed to the failure of key businesses, substantial financial commitments incurred by governments, declines in consumer wealth estimated in the hundreds of billions of US dollars and a significant decline in economic activity.
(i.e. people investing in ebay and then selling after seeing ebay’s earnings.) Many investors were not very experienced and they believed that whenever their stock went down, they felt selling was the best option which fueled the crash even further. Because of the thriving market, many loaned money from banks and invested in the stock market. When it crashed, they could not pay back the loans and the banks lost money.
So the million I have just mentioned is only about 5% of the teenagers in America. So, while the home loans devastated the banking industry, the credit industry was also becoming under fire. In the end, it all came back to the Stock Market, which lead to the recent collapse. When the debt hit the stock market and the companies, investors saw what was happening and pulled their funds, and thus the businesses tanked. The market and housing collapse happened because banks were giving out over-generous loans that were only maturing and never reimbursing the banks back and inflating housing costs, this put pressure on the banks and weakened their stock, so everything began to slowly spiral downward.
The foreclosure crisis has occurred for many reasons. Banks offered subprime loans and teaser rates. They approved under-qualified people to borrow more than they could afford to repay. These borrowers, so desperate to own a home, borrowed over their means, counting on a future and now non-existent upswing of the housing market to allow them opportunities to refinance at lower rates after teaser rates expired. As the housing market fell, the banks no longer offered the refinancing that these borrowers counted on, and other economic issues caused many of them to be on even less firm footing then when they got their mortgages.
The analysis of the Lehman Brothers will show the acts of unethical financial reporting and the effect it had on this financial banking firm. The trouble for the Lehman Brothers became apparent around the time the housing bubble burst. Lehman acquired more risk, ignoring the truth and began eliminating assets that were overvalued. They did not want to lose confidence from the investors, so they reported assets that had little to no value. “Lehman Brothers balance sheet grew rapidly beginning in 2006, and included many long-term investments financed through short-term borrowing”.