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The financial crisis of 2008–2009
The financial crisis of 2008–2009
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More handpicked essays just for you.
The financial crisis of 2008–2009
The financial crisis of 2008–2009
Don’t take our word for it - see why 10 million students trust us with their essay needs.
Recommended: The financial crisis of 2008–2009
Overall, it was the combination of the desire for money mixed with ignorance towards making quality financial decisions that led to the financial crisis. 2. In the past, to get a mortgage you had to go through a series of steps; list them. Show up at the bank with tax records, pay stubs (to verify your income) and proof that you have enough savings to make a 20% down payment
If there was ever a word to describe the events that led up to the financial crisis of ’08, “Moral Hazard” would fit the bill perfectly. Moral hazard happens in financial terms when the success of a particular transaction is very heavily dependent on the performance of a particular party’s obligations, but where a particular party has no interest or incentive to carry out that obligation diligently. Let’s for instance take the example of a loan worth $720K, which was given to a strawberry picker earning around$14K/year to acquire a certain piece of property in the early 2000’s . In this case moral hazard was there and existed because the loan company intended to sell the loan forward to the credit rating agencies due to the inability of the
These banks issued Federal Reserve Notes. The Federal Reserve Act was mainly put into action because the government wanted more economic
Unfortunately, by giving out more loans, the state banks had put more paper money into circulation, causing the value of the dollar to plummet. Inflation hurt the economy which
The government took a big stand during the Great Depression to help the people and make America a great place to live again. It was time for government to step in and help all the people that needed resources from the government. The government created programs to bring relief,recovery and reform to the country. Without any guidance from the government to the people the country would have folded completely. The unemployment sky rocketed which caused the government to have no choice but to step in.
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
This government contributed to The Great Depression because most residents were in vast amounts of debt and had to leave their homes because they weren't able to pay their expenses like mortgage and loans from the bank . Due to credit buying people had already lost their money and when the Stock Market crash occurred the government had to give
The government could not really do a lot to help the banks from crashing because the economy was not regulated as much however President Hoover introduced
President Roosevelt passed a very aggressive reform system to change the economic crisis; it was called the New Deal as i mentioned above. Some of his programs that he passed argued and went against the Supreme Court. At the time many americans were seeking help from local governments, but as the economic crisis worsened, the people started seek help from the federal government, and that was when the role of the federal government had changed. The federal government didn’t want to deal with the economic crisis because they believed they weren’t supposed to intervene in the economy due laws and rights. When the New Deal started the role of the government in the situation grew and began to help out their american people through the reforms and acts set by President Roosevelt.
The Presidents during the Great Depression and Great Recession, Franklin Delano Roosevelt and Barack Obama, respectively, resorted to similar actions in order to combat the economic catastrophes. President Roosevelt brought about the New Deal which consisted of programs, economic reforms, and regulations, to alleviate the conditions of Americans. But, at the same time, it was implemented in order to increase the extent to the government’s power and influence. Steve Hanke, an applied economist at Johns Hopkins University, states that similarly, “this type of intrusive response has also followed the Great Recession, ushering in a plethora of government regulations, particularly those that affect banks and financial institutions” (Hanke). Implementing these regulations and reforms requires large spending, so another parallel drawn can be the respective increase in government spending.
In early 1966, the Federal Reserve abruptly reduced the money supply for about nine months combined with the interest rate ceiling imposed by Regulation Q set the table for the 1966 Credit Crunch. The Credit Crunch of 1966 occurred because banks and financial institutions were restricted in providing liquidity for businesses for the expanding economy.. Both businesses and the US government had large demand for credit and were unable to obtain any credit at any cost . Businesses needed credit to met increased market activity and the US government needed additional credit to fund the ever-increasing Vietnam War. In early 1966, manufacturing firms had high level of backlog orders which led to them increasing their operational budgets because
The elimination of government power in the industry, which was enacted to create more competition within the industry, removed restrictions on loan-to-value ratios for the banks during deregulation. Asset bubbles made the prices of internet companies, stocks, and houses inflate beyond their sustainable value. As stated on thebalance.com, “Irrational exuberance in the housing market led many people to buy houses they couldn’t afford and investors took advantage of low rates to buy homes just to resell them.” Citizens were tricked into buying houses they could not pay off, believing housing prices could only go
To fix the crisis of 2008, a few of alternatives were proposed. The first alternative was government regulation. Before the 2008, the government, for many countries, were no present in the financial banking system. It seems the government took more of a lassie-fare approach when it came to banking institutions. During the crisis of 2008, the presence of government interference was a widely debated topic.
For one, the government could have taken a better look at the banking system used when credit was in play. As mentioned by the Federal Reserve History, banks had ‘floating’ checks that were counted in two bank reserves, one where it was deposited, and one where it was drawn, so it was believed that the cash was in both banks. In truth though, “the cash only resided in one bank.” (Richardson, 3) Overall, it meant that there was less money available in reserves. If the government had paid more attention at the time, this problem could have been avoided.
Secondly, mortgage brokers are seen giving out multiple million dollar loans to anyone and they were actually targeting people they knew couldn’t afford it. This is illegal and very unethical. This also led to the housing market collapsing.