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The 2008 Financial Crisis: Dodd-Frank Wall Street Reform

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The 2008 Financial Crisis, also known as the Global Financial Crisis, was an economic crisis that had worldwide repercussions. It originated in the United States housing market and quickly spread to financial markets around the world, leading to a global recession. The 2008 Financial Crisis was triggered by the bursting of the United States housing bubble, which led to a sharp decline in home prices, increased mortgage defaults, and the collapse of several major financial institutions (FDIC 2014). The crisis exposed the risks associated with subprime mortgage lending and the complex financial products that were created based on these risky loans. The major players in the crisis included financial institutions such as Lehman Brothers, Bear Stearns, and AIG, as well as mortgage lenders like Countrywide Financial and Washington Mutual (Weinberg 2013). These firms engaged in irresponsible lending practices and took excessive risks, which ultimately led to their downfall. One of the "villains" of the …show more content…

The crisis exposed the dangers of excessive risk-taking, regulatory failures, and the lack of transparency in financial markets. It also highlighted the need for stronger regulations to prevent a repeat of the crisis in the future. In the aftermath of the crisis, significant changes were made to legislation, stock trading, business practices, and consumer behavior to prevent a similar disaster from occurring. The Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in the United States to strengthen regulation of the financial system, enhance transparency, and protect consumers from predatory lending practices (Berman 2023). Stock exchanges implemented circuit breakers and trading curbs to prevent excessive market volatility. Banks were required to hold more capital to absorb losses and reduce the risk of

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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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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

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The stock market crash was a huge catastrophe that affected millions of Americans, even those not involved in the stock market, “[The crash] came suddenly, and violently, after holders of stocks had been lulled into a sense of security” (Document 1). After a huge drop in stock prices, many stock owners sold their stock in fear of losing money. The stock market was down $14 million, which even today is a very substantial number. FDR saw the issue in this, and immediately worked to eliminate the issue as well as prevent it for future generations. The Federal Securities Act of 1933, mandating that all companies selling stock provide proof of their company’s worth, and the Securities Exchange Commission of 1934, monitoring the stock market to ensure no one corrupts the stock market, allowed stock to be sold and bought safely once

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The 2008 market crash effects. More than two trillion dollars were lost in global economic growth during the 2008 financial crash. In December 2007, the economy of the United States entered a recession which led many financial businesses to fail and bankruptcy, and investors to back out of deals. This recession was caused by the collapse of the housing market, which had set a new record and had a hold of 600 billion dollars in subprime loans. Further, as if only to shake the already barely surviving economy, one of the if not the biggest investment banks in the whole world, known as the Lehman Brothers.

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After five days, people were panicking and more 16 million shares were sold. But all of those shares were worthless, and investors who bought stocks with borrowed money were ruined. In 1934, a New Deal program, the Securities and Exchange Commission (SEC) was created. The SEC adjusted the securities market, (Doc. 10) and investors in U.S security markets were better protected from fraud. The Banking Act of 1933, created the Federal Deposit Insurance Corporation (FDIC), that gave depositors a scape when a bank fails, and authorized branch banking (Doc. 10).

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Financial Crisis 2008 The historical narrative, “Inside the Meltdown” by the Public Broadcasting Service (PBS, 2017), is a narration of the events that led to the rapid collapse of the company, Bear Stearns. Bear Stearns is considered one of the largest securities trading and investment bank of all times. According to the narrative, among the reasons that led to the collapse of the company were its inability to raise private capital to enable the management of its daily operations.

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In order to reach security, the New Deal underwent many different measures that all focused on creating an American system of relatively riskless capitalism. The first measure of the New Deal was to reform the financial sector. The goal was to instill stability into the American banking system by promoting a new institution and structural change. The target of the structural change was to separate investment banks from commercial banks in the hope of securing savings against the risk of being used for unapproved purposes. The Federal Bank Deposit Insurance Corporation (FDIC) and the Securities Exchange Commission (SEC) both played major roles in the New Deal’s financial sector reform.

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One of the most drastic results of the stock market crash was the invention of the Securities and Exchange Commission. The Securities and Exchange commission 's job was to set brand new rules and punish any who violated the laws. This led to the market being more structured and disallowed many of the shady practices that were previously used. The Securities and Exchange Commission required that, “companies publicly offering securities for investment dollars must tell the public the truth about their businesses, the securities they are selling, and the risks involved in investing,” and “People who sell and trade securities – brokers, dealers, and exchanges – must treat investors fairly and honestly, putting investors ' interests first” (“Stock Market Crashes”). Previously the stock broker 's main focus was on giving loans and selling stocks regardless of the risk of investing for the investor or the investor 's money’s well-being.

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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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The two acts that where created by federal legislators in reaction to the Stock Market Crash of 1929, were the Securities Act of 1933 and the Securities Exchange Act of 1934. The Securities Act of 1933 was designed to help make investments better by requiring the disclosure of all financial and other significant information concerning securities sales, and demanded no deception or misrepresentation of such sales. The Securities Exchange Act of 1934 oversaw and regulated the trading of stocks, bonds, and other security sales. This allowed for the investor to have more confidence in trading with certain sales. I think the measures that were taken by the Securities Act of 1933 and the Securities Exchange Act of 1934 were good, and

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1. Problem Definition The financial crisis of 2008 was not a single event but a series of crises that rippled through the financial system and ultimately the economy. Almost 9 year before Leman Brother start their biggest business by entering in to a major stake in Archstone Smith, a publicly traded real estate investment for $5.4 billion.

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Executive Summary Lehman Brothers were an investment bank involved in transactions worth billions of dollars and one of the most powerful investment banks in the world. Lehman Brothers collapsed in 2008 following bad investment in the sub-prime mortgage market and used bad accounting practices called Repo 105 transactions to try and cover up the bad assets. This report sets out the use of the fraud triangle when describing the actions which led to the collapse. The pressure applied on the bank, the opportunity due to the lack of regulation to carry out the actions and the ability of the bank to rationalise their decision making.

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In conjunction with the stock market crash, bank failures contributed to

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During the financial crisis of 2007-2009 it became painfully clear that the regulation and monitoring of banks’ risks were still imperfect. In hindsight, academics agree that regulators were too focused on banks’ individual risks while lacking when it came to systemic risk. Systemic risk can be thought of as the probability that an occurrence at one company causes instability or the collapse of other companies or even an entire industry. The event that triggered the recent financial crisis was the bursting of the U.S. housing bubble, which affected many financial institutions through its negative impact on mortgage-backed securities and commercial paper markets (Mian & Sufi, 2009). The following spread of this crisis throughout the world revealed just how intertwined and

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Just before 2008 the FRB charged an interest rate of 1% on all its lending. This meant that the private banks could borrow the money and lend it very profitable rates. This encouraged a lot of mortgages as private players in the financial market readily gave out money with immovable property being pledged as security. The results were dire when the borrowers could not pay off the loans and the prices of securities dropped significantly. The crisis was severe not only to the American economy but also to the whole world.

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