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2008 Financial System Essay

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The article talks about the financial system as of now, and how it has changed after the 2008. This is in particular about the banks, the tightening state of credit for consumers in general. The author argues that this was inevitable and rather required, given the fragile state of the financial system today. The macroeconomic indicators also pointing to a situation which is further putting pressure on the banking system, along with the tightening government regulations related to mortgages. Relationship to Course The course on cash management tells us the importance of cash for a company. Though profits are considered an important indicator of success for a firm, there are many who now realize that cash is even more fundamental to the firm’s …show more content…

The banks have been facing a difficult macroeconomic condition, with flatter yield curves and lower lending rates, the banks need a drastic step in order to survive the recent crash. The first response to the financial meltdown of 2008 was the introduction of the Dodd Frank Act, 2010. The government responded by introducing some significant changes to the financial regulation in the United States, so as to add more accountability and improve transparency in the US financial system. The act wanted to bring the myth of "too big to fail" to an end so as to protect the American taxpayer’s money being squandered away in bailouts. The article discusses the changes introduced in the mortgage issuance pattern of the banks, which though superficially seemed to be very basic, but actually resulted in making the process making more complicated and expensive. These regulations, issued by the Consumer Financial Protection Bureau (CFPB), included the changes which were aimed to curb some of the previously held loose practices, which had triggered the meltdown in the real-estate market. In accordance with these new regulations, the lenders were given more encouragement to underwrite only what they classified as the “qualified mortgages” which were defined on the basis of the tougher standards lay down after the crisis. For those who were unable to meet the standards or default during the mortgage period, they could be

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In Addition to maldistribution stood the credit structure of the economy, some farmers were in deep land mortgage debt, so they lowered their crop prices in order to regain credit, and because the farmers were no longer accountable for what they owed banks. Across the nation the banking system found themselves in constant trouble. In America both small and large bankers were concerned for their survival, so they began investing recklessly in stock markets and granting unwise loans. These unconscious decisions would lead a large consequence, such as families losing their life savings and their deposits became uninsured. “ More than 9,000 American banks either went bankrupt or closed their doors to avoid bankruptcy between 1930 and 1933.”Although

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What happened to all the banks then? Well first off people had complete trust in them, that is until the stock market crashed. Banks had invested a lot of money in the stock market also. But when it crashed they lost it all and

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Beginning with bank reform, the New Dealers were able to maintain oversight in the banking industry, which had previously been an unregulated and unpredictable source of capital. The Glass-Steagal Act and the Emergency Banking Act signaled a shift from a lassiez faire approach to the banking industry to one that ensured banks were making responsible loans and not gambling with depositor’s savings in the stock market. By not allowing banks who were considered “irresponsible’ to reopen and separating the savings and investment functions of the banks, a more secure system began to emerge. The impact of this legislation was immediate, as bank failures dropped dramatically. Additionally, major breakdowns in the banking industry were avoided until fairly recently, which came as a result of the repeal of Glass-Steagal.

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786 Words | 4 Pages

FDR came up with a plan to put faith back into the banking system as well as insure the customer’s money was going to be their when they needed it. This program was called the FDIC “President Roosevelt signs this act on June 16, 1933, to raise the confidence of the U.S. public in the banking system by alleviating the disruptions caused by bank failures and bank runs. From 1929 to 1933, bank failures resulted in losses to depositors of about $1.3 billion. Before the FDIC was in operation, large-scale cash demands of fearful depositors often struck the fatal blow to banks that might otherwise have survived. Since the FDIC went into operation, bank runs no longer constitute a threat to the banking industry.”

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10. Case Studies and Impact Analysis 10.1 The Federal Reserve's Role in the 2008 Financial Crisis The 2008 financial crisis was significantly influenced by the Federal Reserve. The spread of subprime mortgages created a housing bubble, which is where the crisis began in the U.S. housing market. A wave of mortgage defaults followed a decrease in house values, setting off a domino effect that resonated across the whole financial system. The collapse of the housing market, the subprime mortgage crisis, and the failure of several significant financial institutions were just a few of the causes of the crisis.

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1826 Words | 8 Pages

Introduction: The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) was signed into law by President Obama in 2010 in response to the financial crisis of 2008. The act aimed to regulate the financial industry and prevent a future economic collapse. It proposed the creation of new regulatory agencies, increased transparency and accountability for financial institutions, and consumer protection. However, since its passage, Dodd-Frank has been controversial, with critics arguing that it is too complex and burdensome for the financial industry.

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729 Words | 3 Pages

Another reform to the Emergency Banking Act of 1933 happened three months later. The new reform increased the power of the Federal Reserve to regulate banking, which divided the banks that dealt with public deposits of investors on Wall Street (Rauchway). Roosevelt feared that one day the FDIC would have to pay out too large a sum, which would lead to the closing of more banks, but he agreed with the reform anyway (Rauchway). In 1935 the FDIC obtained a permanent charter, and now plays a large role in today’s banking

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In 2007, a crisis broke out due to big disruptions in the wholesale bank-lending market. Around 2008, the Fed made two programs that

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On December 23rd, 1913, President Woodrow Wilson signed the Federal Reserve act. This act created the Federal Reserve, which is a central bank of the United States. It has a Federal Reserve Board in Washington D.C. along with twelve regional banks located all across the country. The Federal Reserve has two main jobs. One job is to regulate all banks in the United States and ensure the health of the banking system overall.

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This act separated investment and commercial banking activities. At the time, improper banking activity, or what was considered overzealous commercial bank involvement in stock market investment, was deemed the main culprit of the financial crash. According to that reasoning, commercial banks took on too much risk with depositors' money. The full name of the bill is the Dodd-Frank Wall street Reform and Consumer Protection Act, but it is better known and most often referred to as Dodd-Frank.

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The Federal Reserve is the central bank of the United States of America and its main responsibilities include: regulating the country's financial institutions and implementing monetary policy. However, the Fed we know today is not what it was hundreds of years ago. The development of this central bank has not only been a long evolving process, but has been shaped by many political decisions and historical events. The central bank can be traced all the way back to the Colonial period.

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All the authors are economist. The main purpose is to give a different view on financial crisis as it provides a psychological viewpoint. It is useful because the different viewpoints might provide more of a different form of analysis for the financial crisis. This source is ofhigh value to the final essay, as it is up to date with context to the global financial crisis. Therefore can be used in the final

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535 Words | 3 Pages

Reviewing The Federal Reserve System It is believed that The Federal Reserve System contributed to the failure of the Silicon Valley Bank because it lacked an effective structure. The framework and systems of The Federal Reserve System has been reviewed to improve the efficiency and effectiveness. The Federal Reserve System is defined as “the central bank of the United States, whose main job is to control our rate of monetary growth” (Slavin 2020). Under the supervision of The Federal Reserve System, the Silicon Valley Bank failed.

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2566 Words | 11 Pages

The Federal Reserve System Abdullo Djamshedovich. Abdurasulov Howell High School Advanced Composition Jennifer Sebestyen May 3, 2023 Abstract The Federal Reserve System, established in 1913, plays a crucial role in the U.S. economy by promoting sound economic development and ensuring a reliable banking system. The Fed has two monetary policy goals - to achieve maximum sustainable employment and stable prices. Despite this, there are ongoing debates about the effectiveness of the Federal Reserve's policies, with some questioning whether they have achieved their intended outcomes.

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858 Words | 4 Pages

Transocean LTD: Weathering the Financial Crisis Headquartered in Vernier, Switzerland Transocean Ltd (RIG) is the largest offshore oil drilling companies in the world. RIG is traded on the New York Stock Exchange (NYSE) and on the Swiss exchange (SIX). Its market capitalization of $5.06 billion on the NYSE makes it the largest by capitalization among its peers (Yahoo, 2015). It contracts its offshore rigs, drilling equipment and personnel to oil and gas companies around the globe. RIG specializes in “deepwater and harsh environment drilling services” with its fleet (as of October 2015) of 62 floating drilling rigs (Transocean, 2015a, p. 2).

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