The world currently faces a perfect financial storm of massive proportions. Fiscal mistakes in government and business have worked to form a market situation more volatile than any since the Great Depression. The predicament of home foreclosures caused by this crisis reaches across the United States, and it affects the government, corporations, and individuals alike. These foreclosures displace families from their homes and overload lending institutions with houses that have been devalued by the market. What can be done to stop this? What steps should we take to solve the current crisis and prevent future occurences of similar economic disasters? To solve the problem of widespread home foreclosures, we need a comprehensive set of strategies designed both to aid us in our present situation and to safeguard our future security.
It is not possible to put forth a safe, practical, and functional solution to this complex problem without first understanding how it began. It is important to note that the root causes are complex and varied; there were many factors which contributed to the current situation ranging from the shadow banking system to the overleveraging of consumer assets. While these and other issues certainly deserve consideration, it is of the greatest importance that the focus remains on the following central difficulty and its effects.
Spurred on by the apparent promise of large profits signaled by artificially low interest rates, lending institutions offered high numbers of risky sub-prime loans, often in the form of bundled "credit default swaps.” Only a mortgage holders in each swap had to default for it to turn into a toxic asset. So rather than decreasing the dangers of speculative individual loans, this prac...
... middle of paper ...
...s Americans the option to stay in their homes, and it thus provides them the time they need to catch up on their mortgage payments while still providing lending institutions with a reasonable source of income. At the same time it incentivizes banks to examine each of their mortgages individually, so they can work with the mortgage holders to come to mutually profitable arrangements. The second solution increases the competitive options of local banks, as well as the buying options of local consumers, and it safeguards America from the failure of large banks, as well as providing the other benefits already listed. These solutions could be implemented easily and would take effect swiftly. They are unconventional strategies which provide a unique new perspective on the problem, and they should ultimately provide America with a good start down the road of recovery.
Sase, J. F., and Gerard Senick. Another Mortgage Tsunami? “Let Them Eat Cake” (Part Two). 2010. Print.
The year 2008 was a very scary one for anyone involved in the US stock market. Due to subprime lending, and cheap mortgages, the housing market became grossly overinflated. Naturally, as with a balloon that’s filled too much, it “popped”. The resulting collapse of the housing bubble had severe implications for the rest of the US economy, housing, and related industries such as lumber, construction, and realty all came crashing down, and the people employed in those fields soon found themselves out of work. As with the stock market crash of 1929, fear of the economic instability caused people to pull their money out of any investments they had. This can be a problem for a healthy bank, being unable to supply the money people are requesting if it’s tied up in loans. However, this would prove to be an even bigger problem if the money never existed in the first place, and would take down one of the largest scams in American history.
Leading up to the crisis of the housing market, borrowers got mortgages without understanding the terms. Banks were giving out loans to people the banks weren't sure could pay the money back. The closer to the crisis, the higher the frequency of illegitimate loans and mortgages. Because there were so many mortgages on houses that could not be paid back, millions of mortgages were foreclosed on, and the houses we...
A majority of mortgage defaults that Americans used were on subprime mortgage loans, which were high-interest-rate loans lent to people with high risk credit rates (Brue). Despite knowing the risks, the Federal government encouraged major banks to lend out these loans to buyers, in hopes, of broadening ho...
The Sub-Prime Mortgage Crisis of 2008 has been the largest financial crisis to take place since the end of the Great Depression. It was the actions of individuals and companies that caused this crisis. For although it could have been adverted, too much money was being made by too many people in place of authority to think deeply on the situation. As such, by the time actions were taken to attempt to rectify the situation, it was already too late. Trillions of dollar of tax payers’ money was spent trying to repair the situation that was caused by the breakdown of ethics and accountability in the private sector. And despite the government’s actions to attempt to contain the crisis, hundreds of thousands lives were negatively affected before, during, and after this crisis.
The years 2008 shined a light on a group of people who were considered high society. When the stock market crashed in September 2008, the world shines a spotlight on the financial corporation. Words such as hedge fund manager and financial instrument such as credit default swaps are not words not known to everyday citizens. The economic downturn forced society to ask question not normally asked.
The last quarter twelve percent (12%) of American homes are in default of their loan, or in foreclosure. Add that to the previous four quarters and that is eight point seven (8.7) million homes in crisis. (Further on known as HIC's) The United States “Bail Out” helped major mortgage corporations, and their chief executive officers (CEO's), but not the families that are in, or were in these HIC's across America.
The frequency of foreclosure in our nation today is dangerously high. The strain from the recent economic downturn has put many families and individuals in a financial chokehold preventing them from being able to make their monthly mortgage payments. Consequently, many of these people feel they’ve punched a one-way ticket to foreclosure. With all these homes being foreclosed on, we face a very real crisis.
In the early 2000’s the housing market boomed, real estate was a hot investment and everyone was looking to buy a home. However not everyone can afford a home and a majority of people were forced to take out a mortgage to purchase real estate. During the housing boom banks were supplying subprime loans and upping the risk in the real estate market. These loans were not only risky but irresponsible on the part of the banks’ lending them, and although individuals receiving the loans thought they were being helped at the time, these loans were a major reason why so many people their homes, almost crippling toe U.S economy as a whole.
In this presentation, I’m going to explain how the key roles worked together to create the 2008 financial crisis.
In October of 1929, the American economy took a huge hit from the stock market crash. Since so much people had invested their money and time in the banks, when the banks closed many had lost all of their money and were in the deep poverty. Because of this, one of my first actions of the New Deal was the Federal Deposit Insurance Corporation (FDIC). Every bank in the United States had to abide by this rule. This banking program I launched not only ensured the safety and protection of deposits made my users of banks, but had also restored America’s faith in banks, causing people to once again use banks which contributed in enriching the economy. Another legislation I was determined to get passed...
In the first part, “the foundation” is explained and details about the five main dominating banks. The rating agencies are discussed as well as they do not have a reliable rating system for financial institutions. The second part is about the “mortgage boom” in US and how it leaded toward the debt burden and how money is created out of thin air. The third part is about “the crisis” which was warned by advisers
The "subprime crises" was one of the most significant financial events since the Great Depression and definitely left a mark upon the country as we remain upon a steady path towards recovering fully. The financial crisis of 2008, became a defining moment within the infrastructure of the US financial system and its need for restructuring. One of the main moments that alerted the global economy of our declining state was the bankruptcy of Lehman Brothers on Sunday, September 14, 2008 and after this the economy began spreading as companies and individuals were struggling to find a way around this crisis. (Murphy, 2008) The US banking sector was first hit with a crisis amongst liquidity and declining world stock markets as well. The subprime mortgage crisis was characterized by a decrease within the housing market due to excessive individuals and corporate debt along with risky lending and borrowing practices. Over time, the market apparently began displaying more weaknesses as the global financial system was being affected. With this being said, this brings into question about who is actually to assume blame for this financial fiasco. It is extremely hard to just assign blame to one individual party as there were many different factors at work here. This paper will analyze how the stakeholders created a financial disaster and did nothing to prevent it as the credit rating agencies created an amount of turmoil due to their unethical decisions and costly mistakes.
The financial crisis of 2008 was the worst economic downturn in history since the Great Depression of 1929. There were, not only domestic implications, but there were massive international implications as well. Unfortunately, the crisis didn’t overnight, but had been in the workings since the late 1990’s when the financial system started to deregulate. The common denominator connecting the reasons the market crashed in 2008 had to do with sub-prime mortgages. Sub-prime mortgages affected institutional banks, borrowers and eventually lead to monetary changes in the U.S Government.
Mortgage loans are a substantial form of revenue for the financial industry. Mortgage loans generate billions of dollars in the financial industry. It is no secret that companies have the ability to make a lot of money by offering a variety of mortgage loan products. The problem was not mortgage loans but that mortgage companies were using unethical behavior to get consumer mortgage loans approved. Unfortunately, the Countrywide Financial case was not an isolated case. Many top name mortgage companies have been guilty of unethical behavior. Just as the American housing market was starting to recover from its worst battering since the Great Depression, a new scandal, an epidemic of flawed or fraudulent mortgage documents, threatens to send not just the housing market but the entire economy back into a tailspin (Nation, 2010).