An Analysis Of The Financial Crisis Of 2008 Essay

Submitted By furree
Words: 1537
Pages: 7
Open Document
An Analysis of the Financial Crisis of 2008
Beth Ferri
Centenary College

Analysis of the Financial Crisis of 2008
While many say that the financial crisis, The Great Recession, has come to an end Americans are still feeling its impacts and will for years to come. The financial crisis that started in 2007 ended up costing US Households nearly 20 trillion dollars’ worth of financial assets. During the time period from 2007-2009 Unemployment increased from a rate of 4.7 to 10 percent. This number doesn’t take into account discouraged workers who were neither collecting unemployment nor looking for new work. It also doesn’t consider the fact that people in desperate need for work took lesser paying positions to get by. Their financial positions will be affected for the foreseeable future due to this fact. New college graduates are also earning less than comparable graduates prior to the economic crisis. This issue alone could lead us into the next financial crisis centering on all of the student loan debt that these graduates took with now no way of paying it back.
Leading up to the financial crisis mortgage rates were very low, incenting people to take advantage of the rates to purchase new homes. After the Dot-com collapse in 2001 the Fed continuously lowered the interest rate from 6 percent to a low of 1.75 percent, lowering it further to 1 percent in the summer of 2003. This in turn caused housing prices to increase. No one seemed to be able to fathom that housing prices would ever go down which led to even more purchasing. ("Financial Crisis and the Great Recession," p. 337) In the years preceding 2007 (2001-2007) The US government put programs in place to help Americans who couldn’t previously afford to purchase homes due to income requirements or the lack of a down payment acquire mortgages for homes. Little regulation and unscrupulous subprime mortgage policies converged to create an almost anything goes attitude in the mortgage lending market. “Examples included a deterioration of mortgage underwriting standards before the crisis which was not limited to subprime borrowers…” (Bernanke, 2010)
Consumers were approved for mortgages for much more than they could realistically afford with little or no income verification. People were able to take out home equity loans which were once used mainly for home improvements and use them for anything they wanted, vacations, cars, etc. increasing the amount that they borrowed against their homes. When the real estate market started to decrease they were left with payments that they could not afford without a way of obtaining new loans or a way of selling their home to get out of the debt. Many people just walked away from the debt since they did not have any personal stake in it. They had not put much capital down on the home in the first place so walking away from it was the easy for them to do. They weren’t really losing anything they had put into the deal. Throughout 2003-2004 growing macroeconomics imbalances were occurring. One in particular was the fact that the United States was borrowing approximately a half trillion to a trillion dollars per year from the rest of the world. This is turn was fueling the real estate boom. (Frieden, 2011) By 2005 most analysts of international economic conditions agreed that the imbalances would cause serious problems. The debate was about when it would happen and what exactly would happen.
In 2007 the housing bubble burst leading to a large amount of defaults on subprime mortgages. Exposure to these mortgages caused large banks such as Bear Sterns to default. The bad mortgages caused banking crisis in the fall of 2008 when Lehman Bros. declared bankruptcy. There wasn’t one single factor that that you can point to in order to say this was the factor that created the economic crisis. There were many factors. One factor that people believe contributed to it was the act of keeping interest rates so low during 2003-2005.
Show More

Related Documents: An Analysis Of The Financial Crisis Of 2008 Essay

Analysis Of America International Group

Group (AIG) collapsed in September 2008 and was given a bailout by the United States Government. This bailout became one of the most controversial bailouts during the financial crisis of 2008 and 2009. This company was involved in a high stakes risk taking scheme which was supported by managers and employees who goals were short term financial rewards. One department within this company that was shown to be a culprit in the demise of this company was the financial products department. This department…

Words 619 - Pages 3

Essay Standard Deviation and Ftse All-share

the ‘financial crisis’, or higher during the period of the ‘financial recovery’ – or was there no difference. Therefore, we let σ1 represent the period of ‘financial crisis’ and let σ2 represent the period of ‘financial recovery’, so the analysis is testing for evidence of a difference between σ1 and σ2 specifically, the null hypothesis： H0: σ1 = σ2 H1: σ1 ≠ σ2 Why FTSE ALL-Share The reasons why we choose the FTSE ALL-Share to analyze the short-term volatility between the periods of ‘financial crisis’…

Words 554 - Pages 3

Financial Article Review Essay

Financial Article Review Syed M Razvi Kaplan University Financial Article Review The topic of Taylor’s keynote speech is not an original one: he wants to know, share, and understand how the financial crisis in the first decade of the 21st century occurred. The method or approaching in tackling this issue is more original: he contends that some of the greatest factors influencing the onset of financial catastrophe are due to policies. At the heart of Taylor’s argument is the presence of…

Words 769 - Pages 4

European crises Essay

Lucy Norris 03/09/2013 In this essay we focus on the causes and solutions of the crisis in the EU and describe the possible consequences for European Monetary Union (EMU). In 2008 started the Global financial crisis (European Council, 2010), which has been the worst financial crisis since the Great Depression. The starting point of the economic downturn became the U.S. subprime mortgage crisis in 2007. As a consequence, it broke out all over the world. This has resulted to an economic…

Words 1145 - Pages 5

Subprime Mortgage Crisis and Houses Essay example

Surname Instructor Course Date Financial Crisis In Relation To Subprime Mortgages Introduction Carmen and Rogoff stated that financial crisis is not a new thing in a country like USA, but sometimes it comes as a surprise. This statement reflects the situation experienced in the country during the 2008 financial crisis (Allen 3). The 2008 financial crisis is believed to be as a result of the subprime mortgage crisis in the USA. The crisis came at a time when the country was facing an economic boom…

Words 1464 - Pages 6

3412 Essay

Economic Analysis 2 3. Industry Analysis 5 4. Company Analysis 7 5. Conclusion 9 References 10 1. Introduction This report attempts to perform a brief analysis of various environmental and company-specific factors to identify stocks that could generate significant positive returns in the near future. A top-down approach that is focused on economic analysis, industry analysis and company analysis is adopted for this report. This report recommends investment in a set of banking and financial services…

Words 2245 - Pages 9

Examine The Ways In Which Credit Crunch Has Impacted Its Operations

operations. Introduction; This work will focus on the broader economic impact of the crisis in credit markets, which began over three years ago with the downturn in United States (US) sub-prime housing market. While the epicenter has remained in the US, it has already had a major impact on the structure of Bank of England. In the year 2008 we have seen a significant consolidation within the UK banking sector. (George…

Words 3801 - Pages 16

The Impact Of The Financial Crisis On UK Job Market And Employment

The impact of the financial crisis on the UK job market and employment (2007-2009) Module: PM021-Aspects of British Culture and Society Name: JUN YU WU Student Number: 0908108 Tutor: Jeff Meadowcroft Word Count: 1,970 Contents 1. Introduction……………………………………………………………………...Page 3 2. Global financial crisis (2007-2009)………………………………………Page 3 3. Influence on world job market……………………………………………Page 3-4 4. Influence on the UK job market………………………………………….Page 4-5 4…

Words 2472 - Pages 10

Mortgage Crisis Essay examples

find that I outlined the cause and effect of the mortgage crisis. I also speak on the falling housing prices due to the mortgage crisis and the domino effect that will be created on and for the economy. I will also speak on the foreclosure rates caused by sub-prime loans and no fall back plan to help in the case of the mortgagor defaults. The Mortgage Crisis Thesis Statement: The mortgage crisis that has caused house prices to fall and foreclosures to occur…

Words 1824 - Pages 8

Southwest: Airline and Horizontal Analysis Essays

downs. Over the past five years, Southwest has grown at a solid pace, with the exception of the economic downfall in 2009. In 2008, the company’s profit margin was 1.61%, in 2009, .96%, and then in 2010 it went to a whopping 3.79%. Southwest continues to grow stronger year after year. Even with the economic crisis, Southwest continues to hire more and more employees. In 2008, Southwest had 35,499 employees. In 2011 it had 45,392 employees. Southwest has been able to grow revenues from $14.9B USD to…

Words 558 - Pages 3