The Financial Crisis Since The Great Depression

In the years of 2007-2008, the world economy faced the most severe global financial crisis. The collapse of the sub-prime mortgage market was considered to be the trigger for the Global Financial Crisis. In the United States, low interest rates and financial deregulation created credit conditions where it was easier for the American people to buy homes with subprime loans. It increased the housing demand and raised the house prices in the market, which resulted in a housing bubble. Fannie Mae and Freddie Mac are two private corporations that are referred to as government-sponsored enterprises. They offered a mass of mortgage-backed securities (MBS) to the high-risk borrowers. Rising house prices created home equity for the borrowers, allowing

The financial crisis from2007 to 2008 is considered the worst financial crisis since the Great Depression of the 1920s and destroyed the U.S. economy severely. It led the housing prices fell 31.8%, the unemployment rate rose a peak of 10% in the United States. Especially the subprime market, began defaulting on their mortgage. Housing industry had collapsed. This crisis was not an accident, it caused by varies of factors. The unregulated securitization system, the US government deregulation, poor monetary policies, the irresponsibility of 3 rating agencies, the massed shadow banking system and so on. From my view, the unregulated private label mortgages securitization is the main contribute factor which led the global financial crisis in 2008.

So what exactly happened to the subprime mortgage market that caused all of this? It actually goes back to 1998 with the Glass-Steagall legislation, which separated regular banks and investment banks was repealed in 1998. This allowed banks, whose deposits were guaranteed by the FDIC to engage in highly risky business because they were guaranteed their deposits up to $250,000 per depositor. Following the dot-com bust in 2000, the Federal Reserve dropped rates to 1 percent and kept them there for an extended period. This drop in rates caused bank managers to have to go after higher-yielding bonds because they could no longer make decent yields off of municipal bonds or treasury bonds. They, like Wall Street, got creative with lending, and went after high-yield mortgage-backed securities like subprime mortgages which were mostly dominated by non-bank originators but because of the demand, many banks and private sector lenders jumped on board to increase profits.

The fall of the housing market that begins the recession in 2008 was in large part due to the fact that people wanted large and expensive homes. These were homes that they could not afford. Real-estate agents and their loan officers help manipulate the numbers for these unfortunate individual to get bank loans from banks who would later foreclose on these homes. As the job market begin to decline and massive layoffs resulted all across the country. Many individuals became delinquent on more than one or more house payments after losing their employment. Mortgage companies Lenders Country wide and Fannie Mac and others found themselves holding a massive amount of risky home loans that could have ultimately collapsed the world banking system.

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?’’

Americans took on large amounts of debt believing that they could eventually pay it off. Investors borrowed money in order to buy stocks. This idea of leverage was critical to the excessive amount of debt that Americans began to rack up. One of the biggest causes of the financial crisis of 2008 lies within a term called deregulation. For the longest time, the financial industry was kept in check by strict regulations from the government. Banks were small and high-risk actions were not common. In the 1980s, however, the financial sector began to grow. Banks began to go public, thus receiving lots of stockholder money. The Reagan Administration started a period of financial deregulation that lasted 30 years. This deregulation allowed banks to make risky investments with the money given to them by depositors. This continued through several presidencies. By the late 1990s, a few firms made up the entire financial sector. These few firms were given way too much power. A bubble began to develop in housing markets because of financial deregulation increasing the speculation of housing. As a result of this, many risky mortgages were sold. In less than 15 years, there was a tremendous increase in lending mortgages to people who really couldn’t afford

One included overprice of houses. There were many foreclosures during this time. Financial conglomerates, investment banks, and insurance firms combined trading of mortgage derivatives and etc. This system was known as the "Securitization Food Chain.” It was a scandal, an inside job. The Securitization Food Chain was a system of mortgage transfer that had 5 parts to it which included the following: home buyer, lenders, investment banks, investors, and insurance companies. This was also called the housing bubble and it practically tripled the price of homes and other real-estate from 1999 to 2007. This big difference in price was because the American banks gave uncontrolled credit to other companies and they played a role in this scandal. On December 30, 2008, the home price index had its lowest drop in history. The increase in foreclosure rates in the U.S. made a crisis in August 2008 for the subprime, collateralized debt obligation, mortgage, credit, hedge fund, and foreign bank markets. The bursting housing bubble was an awful effect on the

The financial crisis that occurred in 2007-2008 is narrowly related to what happened with the housing market and the foreclosure crisis. In 2006, the housing market peaked due to newly available loans such as interest adjustable loans, interest only loans, and zero down loans for people with low-income jobs. Housing prices were increasing radically and new homeowners were taking out mortgages that they would be unable to pay for in the future, all in order to be able to afford homes with such steep real estate value. By 2007, things began to go downhill. Interest rates had begun to rise steeply, mortgage companies had to file bankruptcy, and banks across the country required bailout funds from the U.S. Treasury in an effort to recover

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

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.

Now these financial markets have allowed many to become successful and live the “American Dream,” but have also caused many to suffer and lose everything. Back in 2007, the United States’ economy experienced a large financial crisis that almost paralleled the financial crisis during the Great Depression. Large financial institutions suffered a great deal and the stock market plummeted worldwide. The housing market took a huge hit as well, causing many foreclosures and evictions. This crisis stemmed from a major default in the subprime mortgage market. The bad credit records should have given some forewarning to the looming crisis, but the financial innovation for these mortgages gave investors a chance to succeed in the market. So as a large volume of cash flowed into the United States, the subprime mortgage market took off and became a trillion dollar market by 2007 (Mishkin 208). With prices rising in the housing market, subprime borrowers could simply refinance their houses by taking out even larger loans as homes appreciated in value. These borrowers were also unlikely to default because the houses could be sold off to pay back the loan. This benefited investors since the securities backed by cash flows from subprime mortgages had high returns. And this continued growth of the subprime mortgage market further increased the demand for houses and continued to fuel the increase in housing prices.

The United States (U.S.) subprime mortgage crisis, also known as the “mortgage mess” or “mortgage meltdown,” was a set of events and conditions occurring from 2007 to 2010, which contributed to the U.S. great recession, the worst since the 1929 Depression. It was also the longest, lasting for 18 months (December 2007 - June 2009). It came to the public’s attention when a steep rise in home foreclosures in 2006 and seemingly out of control in 2007. It was triggered by a huge decline in home price resulting from the collapse of housing bubble, leading to a rise in subprime mortgage foreclosures, triggering a national financial crisis that went global within the year. The US sub-prime mortgage crisis

Not since the great depression was there such a devastating economic crisis as the 2008 financial crisis. A crisis rooted from the burst of the housing bubble in the U.S. thus leading to the government being brought down, ruined economies, crumbled financial corporations and impoverish lives of numerous individuals.

The new lackadaisical lending requirements and low interest rates drove housing prices higher, which only made the mortgage backed securities and CDOs seem like an even better investment. Now consider the housing market which had become a housing bubble, which had now burst, and now people could not pay for their incredibly expensive houses or keep up with their ballooning mortgage payments. Borrowers started defaulting, which put more houses back on the market for sale. But there were not any buyers. Supply was up, demand was down, and home prices started collapsing. As prices fell, some borrowers suddenly had a mortgage for way more than their home was currently worth and some stopped paying. That led to more defaults, pushing prices down further. As this was happening, the big financial institutions stopped buying sub-prime mortgages and sub-prime lenders were getting stuck with bad loans. By 2007, some big lenders had declared bankruptcy. The problems spread to the big investors, who had poured money into the mortgage backed securities and CDOs. They started losing money on their investments. All these of these financial instruments resulted in an incredibly complicated web of assets, liabilities, and risks. So that when things went bad, they went bad for the entire financial system. Some major financial players declared bankruptcy and others were forced into mergers, or needed

Several factors lead to the 2008 financial crisis. First, the 1999 repeal of the Glass-Steagall Act effectively removed the separation between investment banks and depository banks in the United States. Second, credit rating agencies failed to accurately price the risk involved with mortgage-related financial products. Third, the Government, concerned with not performing economically as well as the Clinton administration believed increasing home ownership was the answer and reduced regulatory obstacles (like loan income/debt documentation). Forth, the world 's insurance companies began insuring bundled mortgage instruments. Fifth, there was excessive investment leverage, especially in the Banks and venture capital communities. Sixth, the Government did not adjust