The Background Of 2007-2008 Financial Crisis

The financial crisis of 2007-2009 resulted from a variety of external factors and market incentives, in combination with the housing price bubble in the United States. When high levels of bank and consumer leverage appeared, rising consumption caused increasingly risky lending, shown in the laxity in the standard of securities ' screening and riskier mortgages. As a consequence, the high default rate of these risky subprime mortgages incurred the burst of the housing bubble and increased defaults. Finally, liquidity rapidly shrank in the United States, giving rise to the financial crisis which later spread worldwide (Thakor, 2015). However, in the beginning of the era in which this chain of events took place, deregulation was widely practiced, as the regulations and restrictions of the economic and business markets were regarded as barriers to further development (Orhangazi, 2014). Expanded deregulation primarily influenced the factors leading to the crisis. The aim of this paper is to discuss whether or not deregulation was the main underlying reason for the 2007/08 financial crisis. I will argue that deregulation was the underlying cause due to the fact that the most important origins of the crisis — the explosion of financial innovation, leverage, securitisation, shadow banking and human greed — were based on deregulation. My argument is presented in three stages. The first section examines deregulation policies which resulted in the expansion of financial innovation and

In 2008, one of the worst financial crises since the Great Depression occurred. The severity of this collapse cannot be understated as demonstrated by the bankruptcy of Lehman Brothers, the fourth largest investment bank in the US, and with many other financial institutions such as Merrill Lynch and the Royal Bank of Scotland having to be bailed out. In addition, the Global Banking System was within a whisker of collapsing and if it where not for the trillions of dollars invested in the system by national banks then this banking collapse would have lead to economic catastrophe. Therefore, in order to avoid such a calamity from occurring again, it is important to ask the question why did this financial recession occur and what factors contributed towards this downfall? Although there are many reasons as to why this recession occurred it could be argued that securitized lending and shadow banking played the largest role in this economic crisis. It is therefore important to understand what securitized lending and shadow banking means. Securitized lending is the process by which a financial institution such as a bank pools illiquid assets, such as residential and commercial mortgages and auto loans (by which the bank receives from the public through house mortgages and loans), and loans these newly formed short-term bonds to third party investors in exchange for cash or collateral. Since its creation in the 18th century, securitized lending was increasingly popular and very much

To understand the development and the impact of the financial crisis, the following paragraph gives a general overview about the timeline of the financial crisis and the series of reactions which caused, at the end, the failure of the American banking system and led to a worldwide economic downturn with the result of the global economic crisis. The topic of this paper is the failure of the American banking system, but as the banking systems of the whole world are interdependent, the whole situation and the whole crisis has to be investigated.

The financial crisis that happened during 2007-09 was considered the worst financial crisis in the world since the great depression in the 1930s. It leads to a series of banking failures and also prolonged recession, which have affected millions of Americans and paralyzed the whole financial system. Although it was happened a long time ago, the side effects are still having implications for the economy now. This has become an enormously common topic among economists, hence it plays an extremely important role in the economy. There are many questions that were asked about the financial crisis, one of the most common question that dragged attention was ’’How did the government (Federal Reserve) contributed to the financial crisis?’’

An excess of regulation, rather than an insufficiency of it, was the principal cause of the recent credit crunch.

Economists and scholars spend years dissecting financial markets and evaluating the causes of booms and busts. Throughout United States history there have been multiple economic booms that were underestimated and followed by recessions. In the situation of the 2007-2008 global financial crisis many culprits have been identified as causes, such as loose monetary policy, credit booms, deregulation, over complexity, and greed. Since the economic boom was solely dependent on weak policies and misconceptions, this leads me to believe prevention was possible with adequate regulatory policy, risk assessment and clarifications for commercial banks.

“The 2007-8 stock market crash was largely due to widespread defaulting on subprime mortgages.” (The 2007-08 Financial crisis in review) In other words, towards the end of 2006, almost all borrowers defaulted. Instead of getting money, lenders got houses back, and put them again on sale. With the huge number of houses on the market, the supply was massively high, while the demand was low. Hence, the bubbles started bursting and the prices of the houses started declining

Seven billion people affected. How can a single screw up lead to a mess that not even governments can fix? How can something so severe continue to damage countries financially 5 years after it began? Many people didn’t see it coming. But what’s worse is that the people that did see it coming, contributed to it. Yes. They fueled this mess. And now we can’t get out of it. This is the financial crisis of 2007 . Let’s dig in to where it all began.

I have always personally thought that the cause of most financial crises is created by the governments and high executive. Most people do not know that white collar crimes occur every single day, but they are not exposed to the news because this type of crimes is not as important as any other crime such as a murder, robbery, and so on. However, the public gets rob on daily basics and the government allows it. This is the reason why only a few people got convicted during the 1990’s and 2008 crises. My best example of government victimization is by taking a look at the economy of countries like Venezuela, Cuba, and many others. In these countries, the economy is extremely bad for regular people; contrary to the people that hold a position

A mortgage meltdown and financial crisis of unbelievable magnitude was brewing and very few people, including politicians, the media, and the poor unsuspecting mortgage borrowers anticipated the ramifications that were about to occur. The financial crisis of 2008 was the worst financial crisis since the Great Depression; ultimately coalescing into the largest bankruptcies in world history--approximately 30 million people lost their jobs, trillions of dollars in wealth diminished, and millions of people lost their homes through foreclosure or short sales. Currently, however, the financial situation has improved tremendously. For example, the unemployment rate has significantly improved from 10 percent in October of 2009 to five percent in

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 outbreak of 2007-2009 financial crisis and its devastating impact on the economy left no room for further implementation of conventional monetary policy. Once the zero lower bound had been reached, as well as the connection between official interest rates and market rates was lost, it was obvious to policymakers that they were in front of an exceptional situation, and in an analogy to what Hippocrates claimed about remedies, this situation called for exceptional measures that could support the functioning of financial markets.

In the 1930s the United States was hit by far the worst financial crisis that it has ever encountered, which was called The Great Depression, but the second worst was not that long ago. During the Financial Crisis of 2007-2009 the United States had a chain of banking failures and a tremendous growth of liability in the federal budget. However, the government had stepped in to prevent some of these failures and through this the concept of “Too Big To Fail” was created.

were reaping the rewards while taxpayers were inheriting the risk. In 1993 Congress met the opposition half way by slowly incorporating direct federal loans but still keeping guarantees in place for the banks. After the financial crisis of 2008, President Obama completely eliminated the middleman and fully implemented direct student loans (Kingkade). Although this stopped large banks from profiting off of government backed loans, it still didn’t reduce the supply of loans or the ease of obtaining them.

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.