The Financial Crisis Of 2007-2009

The financial crisis that put our economy on a downhill rocky road is known as the Great Recession of 2008. The U.S. Governments resolution to one the biggest panics was revolved around multiple bailout and fiscal measures. The fight to pull our weakening economy out of a dark hole left the American people with hope of advancing what gets thrown their way. The many bailout programs implemented by the U.S. Government can only hold the economy together for so long until were up to our knees in debt.

On September 15, 2008, Wall Street entered the largest financial crisis since the Great Depression. On a day that could have been called Black Monday, the Dow Jones Industrial average plummeted almost 500 points. Historically prominent investment giant Lehman Brothers filled for bankruptcy, while Bank of America bought out former powerhouse Merrill Lynch (Maloney and Lindeman 2008). The crisis enveloped the economy of the United States, as effects are still felt today. Experts still disagree about what exactly caused the greatest financial disaster since the Great Depression, but many point to the repeal of the Glass-Steagall Act of 1933 as a gateway to the rise of extreme laissez-faire policies that allowed Wall Street to take on incredible risk at the expense of taxpayers. In the wake of the crisis, politicians look for policies that reign in the power of Wall Street, but the fundamental relationship between economic and political power has made such regulation ineffective.

The financial crisis of 2008 did not arise by chance. The meltdown was precipitated by systematic striping away of the New Deal era policies of bank regulation. Most notable of these deregulatory acts was that of the Gramm-Leach-Bliley Act of 1999. This bill repealed the legislation which held commercial banks and investment banks separate. As the beginning of the 21 century approached many bankers clamored for an end to the policy of the “firewall” between Investment and commercial banks. Gramm-Leach-Bliley Act of 1999, sought to create more competition in the financial services industry. The policy, however, lead to the conglomeration of many corporate entities as banks had the capital to invest (in the form of consumer deposits) in a

The Consumer Financial Protection Bureau, the agency created after the financial meltdown of 2008, has taken aim at the cash advance loan industry almost since the agency opened its doors. The CFPB 's latest attack is in the form of proposed rules that many people believe would "regulate cash advance loans out of existence." The proposed rules would apply to every lender whether they make online cash advances or operate a brick-and-mortar store. Throughout his campaign, Donald Trump repeatedly expressed his antipathy for the CFPB and the law that created the agency, the Dodd-Frank Act. Now that Trump has won the presidential election, many people are wondering whether the cash advance loan industry might benefit under his administration.

During the lead up to the financial crisis of 2007-08, a term was coined to describe what was happening in the financial markets. The term was: Shadow Banking System. The creation of the term was attributed to economist and money manager, Paul McCulley, who described it as a large segment of financial intermediation that is routed outside the balance sheets of regulated commercial banks and other depository institutions (St. Louis Fed). In simpler terms, institutions that are in the shadow banking system are not regulated like commercial banks, and carry more risk due to their investments. Examples of shadow banking institutions are money market funds, mutual funds, hedge funds, etc. During the early 1990s, most American citizens didn’t know or never heard of money market funds or mutual funds; typically, the only people who knew of the “shadow banking system” were most likely senior officers at the big banks or individuals who were experts in the financial markets. However, that all changed. At the turn of the century, the shadow banking system started to gain steam and was growing at a faster rate than traditional banks. At the peak of its growth, right before the financial crisis, the shadow banking system, in terms of liabilities, was about 1.5-2 times larger than traditional banks (St. Louis Fed).

The world before the financial crisis of 2008 had stability. Iceland in 2000 was viewed as the perfect place to live and have your family grow. Iceland had clean energy, high standard of living, jobs, and low government debt. Iceland was a place were children played and parents laughed and enjoyed their life. Everyone lived well; Iceland was the role model of finance, until it all melted away. Iceland let giant corporations come into its territory and exploit its geothermal and hydroelectric resources and its banks became so large to where their banks became larger than their economy, impossible to bail out. The banks became unruly where the people even supposed to regulate the bank one third of them worked for the bank. The cause of the

The 2008 Financial crisis was the worst financial crisis since the Great Depression of the 1930s. Suggested in the documentary Inside Job shown in class, many factors led to the 2008 Financial crisis including a largely unregulated financial sector, and complex financial instruments threatening stability of markets, and greedy predatory business tactics. The Great Depression was the deepest and longest worldwide economic downturn in the 20th century. Fearing another economic collapse, strict regulations were enacted upon the financial industry. This heavy regulation persisted up until the Reagan Era in the 1980s. Financial institutions on Wall Street and politicians in Washington wanted to deregulate the financial industry, which had been

The financial crisis of 2008 was one of the largest financial meltdown rivaling the Great

The 2007-2009 financial crisis is generally considered to be the worst since the Great Depression of the 1930s. It famously led to some major financial institutions such as Lehman Brothers to collapse while many others including HBOS and the Royal Bank of Scotland had to be bailed out by the government. The stock market crashed, unemployment escalated and we were plunged into a recession sometimes referred to as the Great Recession. Although the recession is now considered to be over, its effects can still be felt in the form of high rates of unemployment and an incredible rise in our country’s debt. This essay will aim to succinctly and coherently explain what happened during the 2007-2009

The 2007 financial crisis is probably something that you haven’t heard of. But the reality is that it happened a year before the big one. That is right. There was a shock in 2007 that drove the global stock markets downward. At that time, a lot of people thought that this was an anomaly. In their minds, the 2007 financial crisis was simply a bump on the road. It was like in 1987 when the US stock market crashed overnight. There was a steep drop of stock prices at that time and people thought that the 2007 financial crisis was the same way. They though that it will just be a one-time thing. On the other hand, people who were paying attention probably got all the signals that they needed to exit the market come to 2008 when it brought the big

The financial crisis of 2008 can be attributed to a number of frivolous political actions and unrealistic policies. It is arguable that hearts were in the right places but minds were elsewhere. The objective policy makers strived towards was to construct mortgages, which were more attainable amongst low-income individuals and families. Ideally in the perfect world, everyone would be able to afford the American dream of owning a home. Unfortunately, reality poses that this is not practical by any means. This politically motivated move was ultimately not economically sound. Not only were sub-prime mortgages being purposefully given out, but also interest rates were compressed to unsustainably low percentages. The Federal Reserve’s Chairman, Alan Greenspan was partly to blame for this.

The most popularly known subprime mortgage crisis came into lime light when a steep rise in home foreclosures in 2006 spiraled seemingly out of control in 2007, triggering a national financial crisis that went global within the year. The maximum blame is pointed at the lenders who created such problems. It was the lenders who ultimately lent funds to people with poor credit and a high risk of default. When Fed flooded the markets with increasing capital liquidity, its intention was not only to lower interest rates but it also broadly depressed risk premiums as investors sought riskier opportunities to bolster their investment returns. At that point of time, lenders found themselves loaded with capital for lending out and higher willingness to undertake higher risks in a surge to get greater investment returns. To overcome of the financial instability and housing price bubbles, Federal Reserve has to intervene to combat these issues.

After the financial collapse of 2008, the mortgage environment changed dramatically for both buyers and brokers. In order to protect consumers and raise confidence in the market, the Federal Reserve Board introduced regulations that limited what banks and mortgage originators could do such as curtailing certain business practices and imposing stricter requirements on capital. However, these actions have unintentionally affected broker competition, causing big banks to exit the housing market, which has led to the proliferation of shadow banks and higher-risk practices. These unforeseen consequences could potentially put the housing market at risk by creating a negative environment for consumers instead.

Since the global financial crisis of 2007/8 many European countries have been struggling to recover their economies and regain economic stability. Since the crisis we have seen several Eurozone countries go into administration and be bailed out by financial institutions and other countries, however these attempts to regain stability in the Eurozone have not worked as effectively as many governments and central banks had hoped. On the 4th of September 2014 the European Central Bank (ECB) cut its benchmark interest rate to 0.05%. It will also launch an asset purchase programme, which will buy debt products from banks, the asset purchasing programme more commonly known as Quantitative Easing (QE). Using

This chapter is about the background of 2007-2008 financial crisis. The 2007-2008 financial crisis has a huge impact on US banking system and how the banks operate and how they are regulated after the financial turmoil. This financial crisis started with difficulty of rolling over asset backed commercial papers in the summer of 2007 due to uncertainty on the liquidity of mortgage backed securities and questions about the soundness of banks and non-bank financial institutes when interest rate continued to go up at a faster pace since 2004. In March 2008 the second wave of liquidity loss occurred after US government decided to bailout Bear Stearns and some commercial banks, then other financial institutions took it as a warning of financial difficulty of their peers. In the meantime banks started hoarding cash and reserve instead of lending out to fellow banks and corporations. The third wave of credit crunch which eventually brought down US financial system and spread over the globe was Lehman Brother’s bankruptcy in August 2008. Many major commercial banks in US held structured products and commercial papers of Lehman Brother, as a result, they suffered a great loss as Lehman Brother went into insolvency. This panic of bank insolvency caused loss of liquidity in both commercial paper market and inter-bank market. Still banks were reluctant to turn to US government or Federal Reserve as this kind of action might indicate delicacy of