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The Reagan Administration-1980-2008 Financial Crisis

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From 2007 to 2008 global economies suffered from the worst financial crisis since the depression. The crisis had a lot of consequences – it led to the failure of major businesses, unemployment reaching the highest level in 15 years, and a tens of millions of families losing their homes due to foreclosures. Furthermore, the crisis doubled the financial debt of the United States. We watched the documentary The Inside Job in class. The documentary that is narrated by Matt Damon, reveals the systematic corruption that lead to the crisis, as well as the effects of it. Here is a timeline of the main events that caused the financial crisis: The Reagan administration – 1980’s The election of Ronald Reagan in the beginning of the 1980’s lead off …show more content…

A derivative is a financial instrument created to manage risk. The instrument was created as a result of the oil shock, high inflation and huge drop in the U.S stock market in the 1970s. Economists and bankers claimed that they made the market more stable, but in reality, they had the opposite effect, and made the market unstable. With the use of derivatives, bankers could gamble on everything from the weather to the bankruptcy of a business. But derivatives only ensure against financial risk, when they are used properly. By the late 1990s, derivatives were a 15 trillion-dollar unregulated market. An overuse of the tools was dominant in the period from 2003-2007. In this period, the use of the instrument exacerbated risk rather than controlled it, as investors wanted to maximize their profits and returns, and ended up using the instrument erroneously. CDOs (collateralized debt obligations) are complex derivatives. They are investment products that bundle together different types of loans. In the new financial system lenders sold mortgages to investment banks, that gathered different mortgages and loans. The investment banks then sold the CDOs to investors. This meant that when homeowners paid their loans, the money went to investors all over the world. But CDOs were poorly constructed, and riskier loans were made by lenders. The investment banks didn’t care either, as they solely focused on maximizing their profits. Investors even paid rating agencies to evaluate their CDOs, which meant that they, falsely, were marked as “safe” investments. This system was a ticking time bomb, and it contributed highly to the instability that dominated the market in the years up to the financial

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The 2008 financial crisis happened on Wall st in New York City, Which was believed to be the result of high risk, complex financial products, undisclosed conflicts of interest and the failure of regulators, the credit rating agencies, and the market itself of Wall street. Wall street is known to be the most economical leading part of New York that included business for New York's stock exchange. In the book “The Big Short: Inside the Doomsday Machine” written by Michael Lewis, the Financial Crisis in 2008 is explained thoroughly, looking for the root cause of the crisis. A term that is discussed and repeated throughout the book, “Credit default swaps”, is believed to be a huge part of the crisis. A credit default swap is a financial contract where a buyer of corporate or debt in the form of bonds attempts to eliminate

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Investment bankers were purchasing lots of mortgages and created collateralized debt obligations and made these mortgages available to other investors who wanted minimum risk. But suddenly people were defaulting on their mortgage payments and this resulted in the financial crisis of 2008 known as the housing

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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.

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​The last couple of years proved devastating to the Financial Markets with the United States being the center of it all. In the fall of 2008, once valued securities lost most or nearly all it’s value, the stock market plunged, real estate market suffered an unprecedented demise, the debt market froze and many high flying financial firms went under. The blame list included high-risk real estate lending by some of America’s leading banks, regulatory failures and loopholes of the regulatory board tasked to protect investors, inflated credit ratings by the leading credit reporting agencies in the industry and abuses by the once celebrated investment bankers, who, in the years leading up to the financial crisis designed and promoted complex financial instruments; the most popular of which are credit derivatives that were purported to be the heart of the crisis. ​The financial collapse prompted a call for reform not only within the United States but also in the global arena.

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When this happened, a large portion of these CDSs and CDOs started to pay out and a number of the Divider Road banks found they had no practical thought of what this implied. Morgan Stanley ended up in the red to Deutsche Bank for $1.2 billion. In the long run the bank would take a hit of more than nine billion dollars because of the CDOs an energetic bond dealer sold through their bank. As the home loan bonds started to fall flat, the banks which had put so incredibly in the CDSs and the CDOs ended up coming up short also.

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Xiaoyan Zhu WR 150 L5 04/01/2016 Paper 3 first draft Introduction The most vital lesson the public can learn from previous financial crisis is what caused it. This is always an unforgettable question although the Dodd-Frank Act, known as DFA, has been signed into law. If the right causes cannot be attributed to the financial crisis, it is certain that one after another crisis will come up in the near future. There are several narratives.

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The financial institutions and banks were providing mortgage facilities to anyone who came in, without proper credit checks on affordability or the ability to pay back the loans. The mortgages were based on the assumption of receiving regular payments from borrowers. The mortgage IOU’s were then converted to various bonds and other securities. The borrowers were not informed about the risks involved when they bought stocks and funds on Wall Street. Even pensions and hedge funds were converted into bonds.

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The low points in this story are now household names; Enron was not the only firm in the picture, but also WorldCom, Tyco, Adelphia and many others. There was other serious misconduct as well, including in the once-celebrated IPO market, which in many occasions lacked both justice and integrity. The cost of this cut down to investors has been massive. Luckily, not the same intensity of human suffering that came with the depression of the 1930s was witnessed, however the most recent recession in the market directly affected many more investors than the 1929 market crash, because a higher number of investors had much more of their savings invested in the stock market.

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It’s a wonder that people missed the exaggerated warnings that were shoved right to them, yet it seemed that would turn a blind eye to them ALL. On March 25, 1929 there was a “mini” crash that if thought about, would make them immediately, think “Hey, maybe this should be looked into, just in case.” But none of them did, which led to even more financial ruin. Even trusted financial advisors, the people the government themselves hired, gave warnings, yet society “ran” on – like running in the street, waiting to get hit, and they were hit badly. After the long and enormous stock-market- crash, it seemed as if the market continued to crash, getting worse every time.

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The way a mortgage backed security works is, when a bank issues a home loan to a buyer they must hold the debt of that loan for its duration, this keeps money tied up in banking systems for long periods of time. In order to free up this money, the banks sell bundles of these loans to investment banks, who then open them up for outside investors to buy into. Like all other practices at this time, the success of these programs relies on homeowners making their payments. When the homeowners began defaulting on their loans, the flow of money was cut off and the banks began to

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In 2008, the world faced the worst financial crisis since the Great Depression of the 1930’s (also known as the Great Recession of 2008-2009). This great Recession was the result of the Subprime Mortgage Meltdown in the United States. Billions of dollars worth of securities backed by their mortgages had plummeted in value, which in result strained the balance sheets of Wall Street investment banks. The causes of the financial crisis were extremely complex and responsibility fell to many different parties but some analysts questioned the accuracy of the ratings and the critical role in widening financial crisis played by the “Big Three” rating agencies --- Moody's Investors Service, Standard & Poor's (S&P), and Fitch Ratings. One of the main reasons the analysts bore blame on Moody’s was because over the previous years, Moody’s

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In 2006, the Housing rates shot up and taking out mortgages seemed like a fair option. What the market did not apprehend was the drastic fall in its prices, almost subsequently, an year later, leading to the worst ever bankruptcy situation that sent many leading investment firms like the Lehman Brothers plummeting towards a financial depression and sped their end. Merrill Lynch, AIG, Freddie Mac, Fannie Mae, HBOS, Royal Bank of Scotland, Bradford & Bingley, Fortis, Hypo and Alliance & Leicester all came within a whisker of doing so and had to be rescued . One of these firms, namely Goldman Sachs, under Lloyd Blankfein, survived the mess. It not only survived but recorded its highest profit in that particular year.

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First, loans, leases and mortgages are transformed to tradable instruments through securitization. Second, their funding is conducted in capital markets with commercial papers and repos. In this case, savers direct their money to money market funds instead of depositing at traditional banks. The whole process is performed in several steps through a chain of non-bank financial intermediaries in contrast to a single bank in traditional credit intermediation. Moreover, the process is performed in a strict and sequential order and each step is conducted by a specific entity (a shadow bank).

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This situation was worsened by the fact that countries like Ireland and Spain had many banks and financial institutions that had loans on their books imposed by the collapsing of their real estate markets (Steiner,

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In the late 1920s,several American Commercial banks that were prohibited security issues for companies weren’t able to sell the stocks to the public,because there was not enough demand. So they used money belonging to their depositors To buy these securities. If the stock price later fell,their customers lost a lot of money. This led the government to step up the regulated Of banks, to protect depositors funds, and to maintain investors confidence in the banking system.

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