ipl-logo

2008 Financial Crisis Of 2008 Research Paper

1387 Words6 Pages

The Causes and Effects of the Financial Crisis of 2008 The effects of the financial crisis of 2008 have caused detrimental consequences on the United States economy. The result of this recession has lead to high levels of unemployment, made stocks and bonds crumble, and left the housing and real estate market at extremely low prices. This all could have been avoided if the introduction of subprime loans was never established. In 2008, it started with investors and mortgage brokers getting too greedy. Mortgage brokers would issue mortgages to as many people as they could in order to sell them to investors at a higher price for a nice profit (Dodd, R., & Mills, P., 2008, p.1). Here is how it played out:
Before the financial crisis, only people …show more content…

First, the introduction of subprime loans was a major factor. If it was required to have proof of income, a down payment, and a good credit score, less and less people would have been able to purchase mortgages they would not have been able to pay back. Companies that lent these loans out had knowledge of the effects of what would happen. But, after they sold the loan to the next buyer, there is no more risk for them. When the bankers lend money to the mortgage broker, the bankers get there money up front, and the risk is no longer theirs. After the mortgage broker sells the “AAA” bonds as CDO’s to investors, it is now the investor’s problem, no longer the mortgage broker. It is like a game of hot potato, and after you pass the loan to another investor, it is no longer your problem. This was a factor that could have been avoided if investors would not have gotten greedy for more homeowners for more loans. Second, rating agencies could have been honest and not greedy again. Every time someone buys a bond from a rating agency, the agency gets a commission. Because of the hype from all of the purchasing housing bonds, many agencies would rate the worst bonds as AAA, the highest rating. Although most agencies denied this, saying they were “Personal Opinions”, most people say it was a “Get-Rich-Quick” scheme. Lastly, if interest rates were not so low, it would have been harder for lenders to lend as many bonds. This would have lead to a less catastrophic crash. If a bank had to pay 3% to borrow money, and inflation was roughly 2%, they would have to charge at least 5.1% to make any profit. With higher rates to charge, many more people would not have been able to purchase loans, making the downturn

Show More
Related
426 Words | 2 Pages

People buy way over their head, and what they can afford, and end up defaulting on their loans. Which in turn makes it so banks are not getting their money back that they lent out. Unemployment also plays a role into it. Right now, unemployment rates are lower than the last couple years, but jobs also have been created due to the natural disasters we’ve experienced here in Texas, and Florida. Such as medical, and food services

Read More
566 Words | 3 Pages

Eventually, the government-backed insurance was all but depleted, resulting in a housing bubble burst and financial crisis of 2008. Lastly, investors are the third key figure, as they bundled these loans into investment securities. In their scheme to bundle as many loans as possible, they encouraged lenders to further lower their standards for both loans and documentation

Read More
624 Words | 3 Pages

The lack of responsibility in the government and banks led to the downturn in the economy now known as the great recession. (document I) Starting in 2007 there was a noticeable increase in mortgage

Read More
469 Words | 2 Pages

During , The Great Depression alot things took a turn for the worse encomically but something that took American families by storm was the foreclosure of thier homes. Home owners worldwide where paying down payments averaging around 35 percent for loans lasting up to only five to ten years interest or up to 8 percent. By the end of the period of thier loan mortage holders had to hope they could either refinance or buy the property. In 1928 thier was well over 5,000 mortgages issed in America. During this chain many banks went under, taking homeowners down with them.

Read More
1949 Words | 8 Pages

People could go into stores, not having cash; hence, they could purchase anything they desired on credit. Their mindsets were “buy now, pay later”. The United States’ consumer economy and the introduction of installment plans led to the economy’s massive crash. People took out loans and relied on credit to purchase products. When people did not have money, they took out loans.

Read More
1744 Words | 7 Pages

In the new financial system lenders sold mortgages to investment banks, that gathered different mortgages and loans. The investment banks then sold the CDOs to investors. This meant that when homeowners paid their loans, the money went to investors all over the world. But CDOs were poorly constructed, and riskier loans were made by lenders. The investment banks didn’t care either, as they solely focused on maximizing their profits.

Read More
1177 Words | 5 Pages

Realtors didn't realize there were way too many homeowners with bad credit. It began with the collapse of the investment bank Lehman Brothers. The Gramm-Rudman Act was also a crucial reason for the collapse. The financial crisis was primarily caused by deregulation in the financial industry that allowed banks to participate in hedge fund trading with derivatives. Derivatives are contracts between two or more parties based on an agreed financial asset.

Read More
1001 Words | 5 Pages

The credit default swaps created a housing bubble as banks were now able to trade mortgages and offer more money at what they thought was low-risk. In “The Giant Pool of Money” we heard from some of the home owners who were getting massive mortgages. They had surprised responses as one named Clarence Nathan who made around forty-five thousand a year got a mortgage of five hundred and forty thousand. These loans/mortgages looked great for a while until banks started to run out of cash to afford taking on Credit Default Swaps.

Read More
454 Words | 2 Pages

To this day it is the worst financial crisis since the collapse of the stock market in the 1930s. Many people suggest that increased home loans are to blame for starting the problem. The first sign that a crisis was brewing occurred in 2006 when housing prices started to gradually fall. Realtors then celebrated as they thought the fluctuation meant the housing market was on its way to a more sustainable price range. Around the same time, banks started granting home loans that exceeded the price of most properties.

Read More
614 Words | 3 Pages

People began to pull all of their money out of banks due to their lack of trust, and feeling uneasy about the lack of insurance on their money. With few banks left, they too decided to shut down. They were worried about their survival, and avoided handing out loans at all costs. With practically all the banks shut down, this caused chaos in the economy.

Read More
1606 Words | 7 Pages

As William Black coined the term “control fraud” which denotes that this savings and loan debacle was due to the fraud done by the people in power, who run those large corporations. The savings and loans institutions or thrifts were built to provide the housing facilities to the local communities. Basically they were built for single house families. Keeping this goal in mind it provided individuals with low interest loans. But by 1970s this model began to change when the interest rates started rising.

Read More
1326 Words | 6 Pages

Sheree R. Curry article talks about 5 contributing factors in the housing market crash, low doc loans, Adjustable rate mortgages, equity line of credit, more money down needed and mortgage insurance. Low Doc Loans are loans that do not require much information and do not require borrowers to provide documentation of their income to lenders, Adjustable rate mortgages were made to adjust periodically to reflect market conditions, equity line of credit is a loan in which the lender agrees to lend a maximum amount of money and has to be paid by a certain time, you also need more money down “minimum has now increased to 10% down.” This quote shows increase in a down payment, mortgage insurance used to get replaced by people putting 20 percent down on a FHA-backed mortgage and avoid paying the

Read More
526 Words | 3 Pages

This led to a wave of foreclosures and a glut of homes on the market which in turn caused home prices to plummet. This created a downward spiral, as homeowners who owed more on their mortgages than their homes were worth found themselves in a precarious

Read More
1287 Words | 6 Pages

The housing market bubble was fueled by a rise in subprime lending, which allowed people with poor credit to take out mortgages they couldn't afford. As housing prices began to fall, many borrowers defaulted on their loans, leading to widespread foreclosures and a collapse in the value of mortgage-backed securities. This had a ripple effect throughout the financial system, causing many banks and financial institutions to fail or require government bailouts. The resulting financial instability led to the global economic downturn and widespread job losses. People around the nation responded to this economic crisis in a variety of ways, depending on their circumstances at the time.

Read More
1972 Words | 8 Pages

This was due to many reasons including failing mortgages, toxic debt, and government bank bailouts. The Market Crash of 2008 left many people in immediate despair although improvements in future investing has led to positive changes. Many people have been both positively and negatively affected by

Read More

More about 2008 Financial Crisis Of 2008 Research Paper

Related Topics

Open Document