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Crisis Credit Visualized Summary

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Recommended: Global financial crisis 2007-09

The topic which I am choosing is about the Crisis Credit Visualized. The author tries to explain worldwide financial fiasco in visual form. In this video he covers sub-prime mortgages, collateralized debt obligation, frozen credit markets, and credit default swaps. He shows how mortgages and financial institutions, also known as Wall Street, are highly engaged in leverage. The crisis starts when the federal reserve lowers the interest rate to only 1%. Keeping the money in the savings account is no longer profitable to investors. For the banks, low interest rate charged by federal reserve from borrowed money creates large speculations. To maximize the profit, banks create leverages. For instance, if you borrowed $10,000 and you can leverage …show more content…

They found the concept to connect home mortgages to the lending companies through brokerage firms. The home buyer arranges the home loan through the brokerage, which connects the loan to the lender. From there, the lender sells the loan to the banks. Investment banks package the loan in a Collateralized Debt Obligation account, collecting mortgage payments from homeowners monthly. To lower exposure, the investment banks created three categories of investment known as Safe which is rated as Triple A, Okay rated as Triple B, and the last one being Risky as Unrated. Banks heighten the appeal to investors by diversifying the interest rate among these accounts. The highest rated will earn the lowest and the riskiest earns the most. They created a default swap which means that every investment is covered by home as collateral. Most of the Triple A and Triple B were bought by investors and bankers who don’t want to take the risk. The Unrated was bought by the hedge funds. The investment banks generate huge profit and repay debt to central banks. The risk of the investments are carried by groups of investors who bought the Credit default swap. This is done on the basis that house value will always go up. The risky loans created lots of insolvent

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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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People will want their money to be securely kept until they need it and if the bank is not safe they will remove it. An increase in bank failures during the last few months of 1930 generated widespread attempts to convert deposits to cash. People lost faith in the

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It essentially is when the someone borrows money from a brokerage to purchase stocks, which allows them to buy more stocks than they normally would. The loans are backed up by the borrows past investments. To buy a home with an on-margin loan, it would be similar as to buying stocks. It is backed by past investments, and essentially can be used for anything, but in this case, it is used for a home.

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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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The FDIC protected the deposits of individuals at banks by insuring up to 2,500 dollars of their deposit. This policy, along with other efforts to mend the faults in the banking system, were established in the banks across the country. By doing this, bank closures that had become extraordinarily prevalent in the early 1930’s were almost nonexistent in 1934 and beyond; many financial institutions during the Roaring 20’s invested money in unstable stocks in hopes of making significant gains, and this played a major role in the bank failures following the stock market crash. By restricting the banks and requiring them to insure the deposits of American citizens, the FDIC was successful in making the banking systems of America safer and more

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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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Also known as the FDIC. The FDIC gave the government the ability to insure money deposited in the banks. There was a limit on this insurance but it protects people from losing all of their money. This ended the bank crisis.

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I decided that my first topic will be homelessness. Homelessness encompasses a broad range of applications, such as people who truly picture the connotation of homelessness, those who couch surf, those who homelessness threatens, those who claim to be homeless, etc. My interest piqued about homelessness when I read the book Nickel and Dimed. In the book Nickel and Dimed, a journalist decided to see if people are financially stable on a minimum wage job, and she discovered the many difficulties people have, even though she only had herself to provide for. Because of this book, I engaged in a few conversations with co-workers who struggle with the same issues that the lady in this book did.

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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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All this panic caused many others to go to banks and withdraw their savings which caused even more banks to

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Select a recent, local, national, or international problem and explain why it is meaningful to you. How do you anticipate your college experience and your pursuit of your intended major/academic interest will help you develop a greater understanding of this issue? An issue close to my own heart is one that affects women on a local, national, and international level. Misrepresentation and underrepresentation of women in the media is something that has been around since media of any form first started, but despite the ever-growing diversity of our nation and the world, the staggeringly low number of women in mainstream media has only gotten marginally better.

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Recent trends in banks, to understand why banks and superannuation have such a large asset base one must consider recent history. For many years no matter which major economy around the world

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A risky investment if the homeowners were unable to repay the mortgage. This proved to be the case when the US economy and housing market crashed in 2008 and Lehman Brothers had billions of dollars invested in the subprime mortgage market and homeowners had no money to repay the

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This was a high risk high reward bargain that paid off in the end. Banks were making money off their mortgage loans they were selling off in synthetic CDO’s. These debts were actually worthless. When the housing market and Wall Street crashed, many lost their investments. These were meant to be safe investments but because of the actions of the banks, mortgage brokers and many other factors, millions lost everything.

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Investment is a risky venture and the investors want to make a profit as well as invest in a low risk venture. For this, financial institutions

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