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2008 Housing Market Crisis Essay

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In the fall of 2008, the United States financial markets suffered a loss of value near 30%, making the housing market crisis one of the most terrible periods U.S. history. Mortgage and credit crisis, foreclosures, and the breakdown of banks characterized this period. Beginning in the 1999, the growth of the subprime mortgage market played an important role for what was to happen in 2008. The government's involvement of the crisis, through the Federal Reserve and Federal Housing Administration, can be seen by the relationship of mortage rates and house prices. The banks also played a significant role by passing mortgages to investment banks on Wall Street. After the crisis in 2008, the U.S. government made guarantees to gain the public’s trust once again. By looking at past market failures, people will be able to learn and understand the causes and try to prevent them from happening again. . Keywords: Mortgage, Foreclosures, Banks, Government Housing Market Crash: Causes and Prevention …show more content…

Beginning in the 1999, the growth of mortgage-backed securities played an important role for what was to happen in 2008. The rise of the subprime mortgage market gain popularity among commercial investors but it soon became obvious that involvements with the mortgage market meant huge trouble for the U.S. financial market. Main factors that contributed to the decline include, the high-risk mortgages, government’s easy-money policy and mortgage insurance, and the failure of banks. The economy in general faced a decline and when the crash was over. To alleviate the pressure that was built up, the government made promises to the public to help prevent such as crisis from happening

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Government Regulations The credit crisis of 2008 was caused by lenders providing loans to buyers who could not afford the payments on mortgages when the interest rates rose. The lenders could not pay the investors because the owners were defaulting on their loans. The Government could have mitigated this by having stricter loan qualifications. The lenders would not have been able to lend the money to the buyers who were high risk. Lending to buyers who are high-risk cause issues such as the crisis in 2008.

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The cycle repeated and by 2004 U.S. homeownership peaked at 70%. But, by 2006 the Federal Reserve rate increased to 5.25% and subprime lenders were unable to pay their mortgage causing banks to file for bankruptcy. CDO investors soon found out that their investment was worthless due to the subprime mortgages that filled it. To prevent a financial meltdown the federal government made several attempts to aid homeowners who defaulted on their mortgages.

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Furthermore, bailouts occur as a last resort in an attempt to stop the negative effects on the economy. The current crisis (2008) was a result of subprime mortgages that were risky which brought about the worst recession since the Great Depression. The trouble started with a major Housing Bubble Asset causing house pricing to soar, accompanied by a lack of action from the Fed; that kept the rates too low for too

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The financial crisis of 2008, after the housing boom, brought the worlds economy down by an estimated cost of about $20 trillion. The dilemma that caused the crisis was mainly due to the shortsightedness of various firms and the government, the lax regulatory bodies, and widespread corruption that prevailed between the banks, insurance companies, and the government. The greed for money was another factor that lead to the crisis. The root cause was the business-ethical issue that lead to the crisis was not complying with the moral rules of the industry; the disregard for the responsibility and integrity of the product that the firm was selling; the lack of mutual respect for the investors; not accessing the risk involved and not being transparent about their business. The investment banks and the other regulatory firms sought

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Confidence and investment was produced by authorising loans in the U.S economy (Allen and Carletti, 2010: 5), however the inability of mortgage holders to keep up with payments resulted in the entire state facing the moral hazard of a broken economy (Gorton, 2012: 10). Therefore, moral hazard in the build-up to the 2008 financial crisis was the result of manipulations and malpractice, all of which led to unrealistic expectations for economic performance (Mian and Sufi, 2009:

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It all started when the housing market in the United States went to bust, a period of time during which economic growth decreases rapidly. As a result, mortgage-backed securities and derivatives lost their

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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

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Liquidated The primary cause of the financial crisis of 2008 was because banks were able to make a lot of money, too fast, and used it to raise real estate prices and conjecture on financial markets. They were also investing excess capital into the property market, which bumped up the price of real estate ahead with the level of personal debt. Interest has to be reimbursed on all the loans that banks financed, and with the debt growing faster than incomes, a lot of people struggled to maintain the payments. At this point, they stopped repaying their loans, and banks found themselves in a crisis of becoming bankrupt.

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a. Mortgage companies/ brokers The role that mortgage companies/brokers played, in the subprime mortgage crisis, is that lenders were approving subprime mortgage loans to borrowers with poor credit and a high risk of default. The consumer demand drove the housing bubble to an all-time high in the summer of 2005, which ultimately collapsed in August of 2006. Lenders saw the high demand for mortgages and increase in housing prices as a good thing because the economy was healthy. However, they were not taking into account the consumers whom they were lending to.

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The financial crisis of 2008 shocked many people and had a huge effect on many people’s lives. This essay aims to examine why the crisis happen, why the nation is still taking so long to recover from it, and what are possible solutions other economists have mentioned to try and solve the issue. Causes One of the most commonly agreed upon causes for the 2008 financial crisis is the bursting of the housing bubble right before 2008. Asset price inflation occurred in the housing market and the prices of the assets rose higher than their “real value” (Colander 2013, 385). This means that society believed it was wealthier than it actually was, asset price inflation occurred, and people spent more (Colander 2013, 385).

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If people had not been overconfident that interest rates would remain low, they perhaps would have exercised more caution in choosing subprime mortgages and the collapse of the housing market could have been

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To fund the policy, the financial sector in the US has exaggerated this high investment. Because the US is one of the countries known for its financial taxes, migration to the US. However, the US economy occurs in a led system, which is very fragile to suffer from a crisis. Losses, the inevitable crisis to the US economy. In August / September 2008, the crisis turned into a full-scale financial crisis - and it came alive: Lehman Brothers, one of the leading investment banks on Wall Street, went bankrupt (Stockhammer, 2013).

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