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2008 Financial Crisis Essay

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The Financial Crisis of 2008 was the largest global financial crisis that has ever occurred, even being compared to the Great Depression of 1929. It cost the United States economy around $22 trillion USD in 2008 alone, according to a study by the Government Accountability Office. This initiated the domino effect - an effect that produced a global financial crisis after other markets began to collapse - and it forced the VIX (CBOE Volatility Index) index to rise up to 80% at one point. Financial institutions and the government were directly responsible because the government regulation on financial institutions failed, the government authorized financial institutions to give loans to unqualified people, and the government un-necessarily bailed …show more content…

According to Thayer Watkins, a prestigious professor of economics at San José State University, in the 1990s, under the reign of Franklin Raines, an appointee of the Clinton Administration, Fannie Mae began to demand that the mortgage lending institutions that it made deals with were not “redlining”. This demand pushed banks to lower their standards on the “down payment” and “income” of the person filing for a loan. Additionally, this allowed banks to charge those borrowers at a “higher interest rate,” sometimes reaching 30%. Watkins point ties to the thesis because the government under the Clinton Administration allowed Fannie Mae to push banks to give out subprime mortgage loans. Many of the people who applied were not qualified nor financially secured. The government also pushed subprime loans through more regulation. According to FFIEC (Federal Financial Institutions Examination Council), the Community Reinvestment Act (CRA), enacted in 1977 in Congress, intended to help meet the “credit needs” of the communities, regardless if they are low-income neighborhoods, in which they operate. The FFIEC's claim ties to Watkins claim as they both show that the government-backed financial institutions to give subprime loans. Both claims point to the fact that lending firms and banks were encouraged to give loans towards normally unqualified homeowners. They were even paid with kickbacks for participating in giving loans to unqualified

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336 Words | 2 Pages

Overall, the federal government was never really hands on in housing, that changed in the 1930’s when the Federal Housing Administration (FHA) was created to be apart of the New Deal. After the Great Depression, the FHA sought to rebuild the housing market by introducing the mortgage lending system, that is still used today. The FHA actually did quite the opposite, “instead, the FHA adopted a racial policy”, that took advantage of racial covenants and insisted properties that were insured by them to use those covenants. The FHA introduced redlining policies in many American cities and with the Home Owners Loan Coalition (HOLC), a federally-funded program created to help homeowners refinance their mortgages, it seemed that it would never end.

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72 Words | 1 Pages

During the Great Depression new organizations formed from the National Housing Act of 1934. Organizations like HOLC and FHA (Federal Housing Administration) were placed to assist homeowners unable to pay their existing mortgages and boost the overall housing market. Residential Security Maps were created by HOLC and the practice of redlining was implemented by FHA to categorize mortgages and loans according to desirability for investment and promote a ‘systematic place-based appraisal

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1285 Words | 6 Pages

This shows that the New Deal was a failure because of the loans that the FHA gave out in a racist manner. Although some evidence supports the idea that the New Deal was a failure, more evidence suggests that it was very

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479 Words | 2 Pages

Since then it has supported almost one million mortgage applications so that more Americans can become homeowners and develop rationally patriotic feeling during the war; however, these mortgage rates were based on occupation, income, ethnicity and demand on the market that might be bias to the non-white

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1355 Words | 6 Pages

If the FHA approved the plans, it would insure the loan” (Simkin). The Federal Housing Administration ultimately made home ownership widely accessible to whites by providing them with guaranteed loans and funding in order to buy the homes (Rothstein). The Federal Housing Act specifically excluded blacks from the federal aid that ensured housing loans (Rothstein). The act also refused to provide loans to people who lived within a given radius of African Americans. The mortgage industry also had racial consequences within their industry that prevented black people, black families, and black neighborhoods from any federal housing and/or mortgage aid

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1150 Words | 5 Pages

In “African Americans and the New Deal, the documents starts with, “Most New Deal programs discriminated against African Americans” This was only the beginning. The article goes on to say that the FHA had lower pay scales for Black Americans (African Americans and the New Deal 1). This is discrimination to give higher pay for Whites and not Blacks. One of the New Deal’s program called the AAA, “forced 100,000 blacks off the land in 1933 and 1934”

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781 Words | 4 Pages

Stock market regulations were put in place during the Great Depression to prevent the same catastrophe from repeating in the financial markets, but several years later, Americans aimed a similar greed toward the housing market” (Croft Communications). Millions of people bought homes they couldn’t afford, with money they didn’t have. They took out large loans and weren’t able to pay them back to their banks. Work

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588 Words | 3 Pages

It also played a crucial role in stabilizing and stimulating the housing market, facilitating homeownership for a wider demographic. It persists today with lower down payment requirements and credit score flexibility. Even though the act did expand homeownership, it perpetuated racial discrimination. Encouraged redlining, redlining denied loans and mortgage backing to black communities, contributing to long-lasting wealth disparities. The Housing Act of 1937 did little to address the housing needs of the poor, including many African Americans living in the slums.

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439 Words | 2 Pages

During the 1930’s the Federal Housing Authority partnered with banks and backed loans on houses in order to encourage more people to buy houses (27:11). The FHA was able to bring the down-payment needed to tavke out a mortgage from 50% to 10-20%, and the amount of time needed to pay it from 5 years to 30 years (27:54). There were particular people that were allowed this opportunity and those were White people. Neighborhoods with primarily minorities were said to be volatile to invest in and therefore were “red-lined” by organizations such as The National Appraisal System (33:12).

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1361 Words | 6 Pages

Problem statement Thousands of New York city homeowners defaulted on their mortgage loan payment during the great recession of 2007-2010 (Perkins, Lear, & Gaumer, 2017). One in 12 New York city households has entered the foreclosure course, representing 4.77% rise of residential instability (Taylor Poppe, 2016). The general business problem is mortgage foreclosures increasingly rose throughout New York City. The specific business problem is that some lending institution leaders lack strategies to decrease mortgage default.

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839 Words | 4 Pages

Considered the largest economic decline since the Great Depression; the Great Recession changed the lives of many Americans. The recession began as the US housing market went from boom to bust as mortgaged-backed securities and derivatives lost significant value. Down more than 90% the stock market wasn’t all that was impacted by the recession. One of the consequences of recession is the impacts it can have on people. “Grim as it is, recession lead to higher rates of child malnutrition, and there is ample evidence that point to serious long-term consequences to such malnutrition, including stunted development and academic under-achievement” (Forbes).

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1097 Words | 5 Pages

No one listened. Even worse, people making 100K were buying a house that cost 700K with no money down with loans that guaranteed failure. ' No document' loans were really popular (where buyers were saying they made twice as much as they did and agreeing to 5K a month in payments plus taxes and insurance). And let's not forget investors who bought homes that they never saw in towns they couldn't even find on a map. In my town of North Port, Florida I have talked to people who did not even know where North Port was when they bought 2 or 3 houses no money down and thought they were going to make killing on each one.

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1854 Words | 8 Pages

It’s goals were to improve housing standards and conditions, provide an adequate home financing system through insurance of mortgage loans, and to stabilize the mortgage market. The intention was to regulate the rate of interest and the terms of mortgages that it insured, so people could afford a down payment on a house and monthly payments on a mortgage. This was a very successful program created by the government as the amount of homeowners began to rapidly grow. However, this program had a very negative impact on minorities and the options they had for housing because it established mortgage underwriting standards that significantly discriminated against minorities, and also made it extremely difficult for minorities to get mortgages. Even from private investors as

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691 Words | 3 Pages

Fines imposed on banks due to the Financial Crisis of 2008 According to Reuters, an international news agency, a total of $141bn has been paid as fines by banks due to their contribution for mis-selling US mortgages and $44bn to UK customers as compensation. Reuters says ‘The banks risky practices led to the 2008 financial crisis, considered by economists to have been the worst crisis since the Great Depression of the 1930s. The fines have affected the banks' efforts to rebuild capital, reduced dividends for investors and cut the amount firms are able to lend. The misconduct bill is expected to rise by tens of billions more dollars, and many politicians, regulators and industry observers said more needs to be done to deter wrongdoing.’

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800 Words | 4 Pages

The 2008 recession was the tipping point with regards to the UK construction industry’s skills shortage (Sullivan & Paton,2015). Years leading up to the recession had highlighted the unresolved issue that there was a lack of skilled trade workers entering in the sector which peaked during the 2008 recession. The result was that many workers who were laid off, never to return to the sector. Bruce Boughton, people development manager at Lovell Partnership, emphasises this, saying: "Before the recession, you had staff who had been working for 10 or 20 years. As many of them were laid off, there was a big shortage of experience on workforces” (Roberts, 2014).

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