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2008 Financial Crisis Essay

448 Words2 Pages

The housing market in the United States suffered greatly as many home owners who had taken out sub-prime loans found they were unable to meet their mortgage repayments. Property values began to decline, adjustable-rate mortgages began to reset at higher rates, and mortgage defaults increased dramatically. Pooling and other clever financial innovations did not provide investors with the promised protection. Mortgage-backed securities slumped in value, if they could be valued at all. Supposedly safe CDOs were worthless, despite the high ratings credit agencies assigned to the securities. It became difficult to sell suspect assets or to use them as collateral for the short-term funding that many banks relied on. Banks capital took an instant …show more content…

This resulted in investors not investing in securitized debt and attempted to sell their securities but, there was no buyers in the market and prices fell even more. The collapse of Lehman Brothers on September 14, 2008 marked the beginning of a new phase in the global financial crisis.Three of the largest U.S. investment banks either went bankrupt (Lehman Brothers) or were sold other banks (Bear Stearns and Merrill Lynch). The remaining investment banks, Morgan Stanley and Goldman Sachs, elected to become commercial banks, exposing themselves to more regulation. The 2008 Financial Crisis caused fear and panic globally, banks and financial institutions froze all credit and loans overnight.

Upon a turn for the worse, people wonder why they weren’t warned earlier. The ongoing financial meltdown has cast a shadow over the entire economy, and caused some to question whether enterprise risk management (ERM) has failed. I believe a large factor of the credit crisis is a failure of risk management, Risk managers themselves and the entire risk management system. I believe the single most important message from this financial situation is the need for vastly improved risk management

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