The Power of a Financial Crisis
By: David A. O’Brien
Alfred State College
Table of Content
Table of Content:
Prior to the Crisis:
Details of the Crisis:
During the Crisis:
The responses of the government:
After the Crisis:
Throughout this report there will be discussion on what happened before, during, and after the financial crisis of 2008. This report will not only cover all information that is generally common knowledge for most people like what happened throughout the banks and within the stock markets and into more depth like what the banks knew they were doing that lead to the 2008 financial crisis. There will also be discussion on the topics of the environment leading up to this tragic event following with the severity of this crisis and what it did then to affect how we act and go about certain things in today’s economy. Including the changes the banks had to make to not only correct this crisis but what they had to do to prevent something like this ever happening again. One positive that always comes out of a tragedy is how history and knowledge on this financial crisis helped fixed our weak spots in the economy and helped strengthen the economy as a whole. Then the report will go into depth on how our society and all parts of our government not only went about this situation but how they made the adjustments and how they reacted during this crisis. With an economy like ours it’s not about if a crisis is going to happen it’s all about when it is going to happen and what are we doing to prepare for it and get out of the crisis with the least amount of damages caused. When a lot of factors are involved in any decision it is almost a guarantee to expect crises but what makes an economy a great economy is how we handle our situations and problems that lead to the issues. Then lastly the report is going into detail on how we adjusted and changed from then to now and the overlook and view on what our financial industry looks and acts now. We are not perfect but the goal is to always be working to be the best and to always try to become perfect. The financial industry did a good job at getting us out of this crisis and put a lot of barriers in place to help prevent an issue like this from happening again. The report will also cover where we are now within the financial industry.
In order for a crisis this severe to take place we have to look back at the following years that lead up to this. This paragraph within this report will conduct research and analysis on the years for the year 2004. Following research throughout this report shows that things dating back in 2004 lead to some of the issues that occured in the 2008 crisis. So starting with the year 2004 we can look back out our statistics and data that have been collected over the years and see that one thing that started off the lead to the crisis is the fact that the feds had started increasing their interest rates in the year 2004 which continued onto the year of 2006 which would eventually lead to the housing bubble to bursting in to a crisis. To see the graph that shows the interest rates from before to after the 2008 financial crisis (Refer to exhibit A). The interest rates are a huge influence on the financial industry because debating on what it is determines how much money will be borrowed through loans and mortgages. As anyone could imagine the lower interest rates are the more money will be borrowed and taken out and quite the opposite as interest rates are higher. Generally when “shopping” around for loans you are looking at the interest rates and trying to get the best deal and starting in 2004 it started getting harder to find best deal as the rates were on the rise. So as these rates were increase the homeowners who had these loans out were given payment amounts that most just could not afford to make the payment. Which lead to more defaults on loans which lead to less cash asset coming into the financial industries such as banks. Another thing that came about in 2004 that help lead to the crisis of 2008 was Basel II which is an expansion of the capital requirements that were put in place from Basel I. The main difference that came out of this was the “incorporation of credit risk of the assets held by financial institutions to determine regulatory capital ratios” (Investopedia). Doing this not only allowed banks to keep less money within the financial industry it also allowed them to give out more of their liquidable assets. Which eventually left banks with less money within the banking system and replaced it with more outstanding liabilities and debt. This was just a beginning to what lead to one of the biggest financial crisis since the Great depression and stock market crash. My insight on this is that I feel that adjusting the Basel I wasn’t a bad idea due to the fact that it was over 10 years old and times had changed. Although some of the changes that were made looked to be more in the interest of profitability and less in the interest of the stability of the financial economy.
Moving forward from the year 2004 to 2005 which is just another year that helped lead to our financial crisis of 2008. The year 2005 was a year where a lot of financial playmakers and economist could start seeing more in depth of a crisis that was soon to come. Within the year of 2005 there were still mortgages being taken as they would be in every year but in this year the mortgages started coming from more private investors who were more focused on making the quick profit. Although this is a great strategy that did make a select few lots of money it did veer from the main objective and goal which was to help achieve the goals of lending for lower income families. People were taking advantages of the interest rates as they were increase to increase their asset value. Without taking in consideration the possible outcomes and consequences that would come from these. A wise man who held the position of chief economist of the International Monetary Fund named Raghuram Rajan informed some of the more important bankers and financiers that the “technical change, institutional moves and deregulations had made the financial system unsable” (Forbes). This was brought to everyone’s attention due to the fact that many investors were taking advantage of the profit that came in the short run not looking deep into the long term insights. A lot of people were noticing the profit coming in from all the short term gains and a lot of them want a piece of the action and try to make their cut in the gains. Which lead to the issue of how much risk investors were willing to take on just to get that extra gain to get ahead in the economy. Although this is the thought of many investors and financial industries to be the most profitable. It would of been best overall if not only the short term effects were taken in consideration but to also look at the possible effects of the long term goal. Although we can’t sit here and say that things would be different if they were to do this because there is simply not enough evidence to prove that things would of been different. Especially due to the fact that people in high places announced this and warned people that the market was unsable it did not scared investors away from making the jump to get their share of the short term profits. Maybe the investors and people knew what they were doing and were accounting the risk that could happen and just didn’t want to talk about the what ifs and the what might this lead to. Instead just looked at the here and now and focusing on playing the market right and predicting the market. A insight that I take from this is that people were caught up in the here and now investments and were more less being greedy and wanting there cut of the money. I also feel the fact that the feds should not of allowed the market to come to such instability and focused on fixing this faster than they had.
So after covering the events that took place in 2005 that help lead to the the 2008 financial crisis it’s time to move forward to the year of 2006 and the events that occured throughout this year that help lead to the crisis. In 2006 the interest rate drastically increased to the highest point in the 2004-2009 era. This is the year where the homeowners were being hit with payments due that was more than expected and less then affordable for these homeowners. Homeowners did not see this coming and started to experience some struggles on their debts and started to realize that they are in deeper in the hole then a lot of investors and homeowners expected. During this year investors and homeowners start to worry about these rising interest rates and started debating if they are going to keep growing or if they are going to hit the drop off point. This increase in the interest rates brought to light more insights of the instability of the financial industry and economy. During this time home prices dropped dramatically. Homeowners predicted that the interest rate would eventually drop but they all hope to be out and sold their properties before this event. Although that wasn’t necessarily the case though in 2006. When housing prices dropped a lot of homeowners and investors could not sell their house for the price they planned or hoped for. When this happened these homeowners and investors realized that their income isn’t as steady as hoped for and planned for. This lead to the failure to pay their high rate mortgages and interest rates and started the increase of foreclosures and bankruptcy. This was one of the key points that brought about the 2008 financial crisis and the struggles for banks, investors, and homeowners. My insight on this is that it goes to show whether people want to believe they know how to predict the market and understand how the market works it isn’t as easy as they hoped. The market has a mind of its own it does what it wants and will act how it wants. I feel this was necessary though and if it didn’t happen at this time you could of lead to a lot worse issues and much larger consequences faced. After seeing the amount of foreclosures and bankruptcy that happened starting this year there are a lot of people who failed to predict the market and failed to get out while the housing prices were at their peak. Although this isn’t speaking on behalf of all because there are some people who did get out while they were at the peak and stressed less about the housing marketing pricing dropping, but for the most part a lot of people lost a lot of money.
So after breaking down the events that took place three years prior to the actual 2008 financial crisis. Although it is generally referred to the 2008 financial crisis the crisis realistically lasted from 2007-2009 which will be coming up in future paragraphs in this analysis report. This paragraph is going to touch on the environments of the market before the crisis so all the years above. The financial environment was awesome before this crisis interest rates were as low as 1% so it was almost as if people couldn’t turn down such a great deal. Everyone from low income families to top investors decided to take advantage of these prices. It was a great time for most people making quick money profiting incredibly and just doing as great as they possibly could and enjoying the market and becoming more involved in risks than most people probably ever thought they would be. It was pretty much a free open buffet that everyone was able to take advantage of and enjoy at the moment while they were eating it. Until they realized the buffet consisted of expired goods that would eventually lead to food poisoning and pain and suffering after taking advantage of such thing. This pretty much goes to show that if it looks, sounds, and seems to good to be true it is generally because it is. Well in this case it deems to be true. As for the regulatory environment they became generally more lenient and tried to create a system to help the lower income individuals to take advantage of a lower interest rate and to get a house and get everyone into a house. Doing this increased the want for housing and the construction of houses and provided more jobs to those in need of them. The regulators were in the right place and did have good ideas with this although they did not account for everything as they should as the ones who are suppose to regulate the environment. So overall both the financial and regulatory environment were doing well before the start of the crisis in which they realized how much of a bumpy ride they are actually in for. In which we see these environments making changes rather quickly so salvage the economy.
Moving forward into the crisis itself for the dates 2007-2009. Throughout these years not only did our economy sink and financial industry dropped significantly and many have lost a lot of money. This was a time of crisis for almost all aspects of the United States. This crisis was very severe and lead to desperate measures and measures that were new for the financial industry. To continue on with this analysis paper and to get into the details of the crisis it will start with the year 2007. The events that occurred throughout 2007 were scary and dreading. It did not look recoverable at this point. Throughout this year a lot of things happened one of them being the fact that home sales hit their peaks it was the time where homeowners and investors felt it was time to cut all their losses and just get rid of their houses and assets and such a loss that it hurt those selling them pretty bad. In any event of making a purchase to resell the goal is to not lose money but in this case their goal was to cut their losses as best as possible without having to let them go up for foreclosure and not make anything on their assets after all. Also a tragical event that occurred throughout the year of 2007 was when the Dow Jones Industrial Average “dropped more than 600 points from it’s all-time high of 12,786 on February 20” (the balance) The easing part about this was it bounced back shortly after. There was so many foreclosures that were just taking place throughout this year the banks were drastically dropping in value and hurt even more then before so instead of collecting all the foreclosures they tried building plans that would help prevent these from continuing to happen. Banks started to let them focus more on refinancing to a price that was affordable and achievable for the homeowner and allowed banks to still bring in some sort of revenue and to start gaining back some of their assets. Although this was a great plan and helped some people for others it felt it was just too late to help people became that broke and desperate it was hard for them to even afford a refinance loan. After these events the feds realized that they not only need to step in and help they had to take action as soon as possible. Their solution that they felt was the best way out was to lower the fed funds rates at a more aggressive level then they would usually go about lowering these levels. The lending and borrowing got so bad and so caught up that banks didn’t even reach out to other banks or other banks wouldn’t even lend to other banks due to the high probability of getting stuck with more debt and more liability then they already have that they are struggling with as is. Which is a tragedy you know it’s bad when banks won’t even give loans out to other banks that makes it really hard to rebuild assets. By the end of the year before moving forward to a new year and what hoped to be a fresh start the crisis became even worse because foreclosure rates nearly doubled before the year came to an end with just hurt almost more Americans then helped (the balance). Every state was experience these tragedy and foreclosure rates nearly doubling you can see an example of Oregon going through the foreclosure tragedy by looking at the graph (exhibit B). My insights on the year 2007 I realized that there was a lot of things that the government tried to do to help fix this problem and help rebuild the financial industry. Although no plans worked they were able to take the data retrieved from what they collected with the things that didn’t work and were able to start a new plan to hopefully help out 2008’s crisis because just when you think you seen the worst of it throughout the year it does not get better within the next two years at least. They were desperately hurting throughout these three years and I felt that the government and feds should of done more than what they did at the first sight tragedy in my opinion they should of jumped in and took over the banks to not only take control of the damage but to help ease some of the crisis. Do to these events just based out of 2007 and previous years it would be easy to say the severity of this crisis was bad because of all the foreclosures which lead to more defaults on loans and more defaults on loans lead to less money coming into the economy and less money coming into the economy lead to less money in capital in the economy.
The financial crisis consisted of a lot of governmental issues and financial industrial issues, especially in the banking industry. The economy was doing things they knew they should not of been doing, things they know that had potential to go south quick. It is crazy to believe that with all of the regulations and federal officers that these things were able to slide through the cracks. Some of the details that were the leading causes to this issues were the interest rates. The way interest rates were varying throughout this short time frame should of been one of the first eye opener for the economy to realize that something is not so much wrong but that something was suspicious. I do understand that it just looked like a booming economy and that it looked like a time of prosper and a time that any people took advantage of these rates. A lot of people actually took advantage of these rates to much. People thought that the house marketing was just booming and everyone wanted into it no matter what cost. It was thought that it was just to big to fail. As we are aware of today they were wrong about this one. The interest rates got really high at one point while the prices of houses went down. This led to more foreclosures and less income people couldn’t afford to pay their mortgage rates and had to let loose of their properties. Not because they wanted to but simply because the market turned south so quickly that most people did not prepare for it. The severity the interest rates played in this crisis was huge because it was the start of a issue everyone was just trying to get rid of. The rise of the interest rate led to the banks pawning off their bad subprime mortgages just to cover their own. This was one of the main leading factor into the trust issues amongst banks. All these foreclosures and debts were building up in the bank systems and like anyone or anything they are trying to pawn of the debt to the next person. That is exactly what the banking industries started doing. They took failing loans and mortgages bundled them together which gave them diversification and high rates. This pretty much took all your garbage bundled it together spray painted it gold and called it gold. So on the outside of these funds they look like something that would be beneficial and well diversified but the ones pawning them off know exactly what they did. This went on and on throughout more and more banking industries to the point where banks did not trust one another and avoided doing business amongst each other. Which did not help our economy at all. Everyone needs assists at least sometimes including banks and if they can’t seek help from other fellow banks who were they going to be able to seek assistance from. Another issue that was huge in the way this crisis played out was the fact that banks and investors were giving loans to just about anyone they did not do solid credit checks or background research. Which leaves me to assume that they knew they were going to have a lot of defaulting loans but because they were taking these subprime mortgages and bundling them and sending them off to the next person the banks giving the loans didn’t really care who was getting the money. They knew they would be eventually pawning them off to the next person. So a few things that I believe we can make the assumption that were the main reasons for this crisis which were deregulations and how they were off balance and many recognized it but did not do something about it instead they let it be in hopes that it would balance out on its own. Which leads to greed the fact that people saw these issues instead of taking care of them they decided to take advantage of the here and now market and become profitable from it and they did. This then leads to the instability of a market and how it was inconsistent and was not stable in the least bit but no one wanted to take care of the issue right away because why? It was simply because they were making money so why worry about the future when they are making money now. These things are not in chronological order but all feed off one another which is one of the main reason of the instability. Lastly but not the least with bank industries doing bad and being disorganized lead to the fall of the stock market and when it fell it fell hard. It took one of the largest hits in a single day going down around 770 points. The severity of the stock market taking a hit like this was pretty severe because now not only were people in the housing markets and banking industries were losing money but people who may have just been trying to avoid all of that and staying consistent with their stock market plans. So this crisis went from being amongst a few to being amongst almost all. Retirement plans were being affected other countries were even being affected when the market took a hit. To put numbers to the facts of this crisis view the graph that follows (Exhibit C).
So moving forward from some of the details that were involved in the financial crisis itself here is more in depth about what what was going on in 2008. This is the year that things went from bad to worst. This was the year the almost put us in such a bad place there was no returning. The stock market got hit and hugely affected by this crisis along with the banking industries and how they were failing. These two industries alone make up a huge proportion of the economic wealth in our country. One of the causes that help kickoff the 2008 crisis was the foreclosure rate just increasing and increasing. Not saying that this is the only part that the economy started to crash in fact the part that hurt the financial industry more was how the feds were going about trying to prevent this crisis and trying to stop the pain of foreclosure rates. The feds started lowering the fed funds rate at a faster paced than usual in hopes that with lower interest rates the market and economy for homes would bounce back and become more of a demand. In fact there was “57 percent more foreclosures in January 2008 then there was in January 2007” (the balance). This number is not only outrageous but absurd it had become this high. The saddest part about this is it is only scratching the surface of what happened during this crisis another event that happened was the feds took more immediate action and started giving sort of low key loans to banks to cover their assets and liabilities. It was smart to sort of keep the loans a hush hush matter instead of sharing who borrowed what from the feds because if they had did they other banks would take advantage and know that they have a lot of subprime mortgages. Although the feds were under the impression that these bailouts were helping the financial industry and helping them stabilize that was not the case in fact in only hurt and made the economy even more unstable. Later on the year another tragedy took place which included the fail and bankruptcy of IndyMac Bank. At this time crisis just seemed to add up and up it seemed like that for every step forward the economy was trying to make the debt and liabilities were just pushing them back 2 steps and was just becoming counter productive. We can imagine that when this bankruptcy occurred in their bank people were lined up ready to collect all of their deposits which is understandable but did not help the economy taking this money of the financial industries. After bailouts after bailouts the government realized that further action was required and more things had to be done to get us out of this crisis one important step that took place that helped was the take over of the Fannie and Freddie by the government this gave the government full control of the management of these two to help stabilize them to a point independent management would be allowable and be safe again for them to run it. This was called conservatorship. Where the government would take on all the risks and help stabilize it while the individual management pretty much sits back and waits till their head is back above water. Although Fannie and Freddie were willing to allow the government to take over during this crisis we can’t say that about all failing banks and investment banks for instance Lehman Brothers. This bank did not want to accept help from the government during this catastrophic event they felt that all the bailouts already was enough. They knew they were to blame taking on all of the subprime mortgages and had to face the consequences which in this case was the bankruptcy of the investment bank Lehman Brothers. Although they did not have any knowledge that the failure of this bank would lead to even more dramatic changes to the industry it did in fact it presented a global scare to the financial industry.
Bailouts after bailouts we ask ourselves when will it be over how many more bailouts were needed to become stable again. The answer to the question was uncertain at the time the feds just knew they had to keep doing it to prevent failure of the whole economy. One notable bailout that should not of been in played was the bailout of AIG the only reason this one was not expected and was mind blowing because this organization/company were invested in the safest of safe insurance policies but instead of doing the proper thing and sit back while this is all going on they decided to take the cash from this and began offering unstable unregulated credit default swaps to try and increase profit. While all of this was going on in the banking industry and housing markets we can not simply forget what was happening in the stock market. In fact in this year the dow to the largest single day hit it has ever seen dropping over 700 points as shown on the graph (Exhibit D). Congress did not realize the global effect it was making when they decided to decline the 700 billion dollar bailout form that would of hopefully put everything to ease and help save the economy once and for all but that wasn’t how they viewed it they saw the bailout money was a way wall street was trying to take advantage of the bailout money at the taxpayers expense. After seeing this crash in the stock market and realizing the severity of what has come from it globally Congress decided to retract their following statement of declining the Bailout bill and decided to pass it. This was known as the T.A.R.P. which stands for Troubled Asset Relief Program that not only helped homeowners prevent foreclosures but helped auto companies as well. Although the initial reaction that came about from the bailout plan did negatively affect the stock market it did its job on providing cash at hand. The banks had trust issues amongst themselves which would take time to trust one another again and once they do the stock market we can assume would start to increase. So within this year we can see all of the responses made by the government, private sector, and regulatory with the low rates in fact the lowest rates we have ever seen in history. This was used to help prevent foreclosures and defaults on as many loans as possible so money would still circulate throughout the system. The takeover of Fannie and Freddie played a huge role in the act of the economy and help mitigate risk to individual investors. All the bailouts that came out of the government to help cut loses and to help stabilize the financial industry. These were all key factors that were involved and resolved throughout the 2008 financial crisis.
So to recap all of the responses to the financial crisis from the government, private sector, and regulatory including details of from the Federal Reserve, Congress, and the major financial and insurance industries. This article is going to break it down into separate paragraphs. This paragraph is going to recap the responses the Government, Federal Reserve, and Congress gave towards this crisis. Some of the government’s responses to this crisis that was discussed above were the actions it took when it took over Fannie Mae and Freddie Mac to help not only strengthen the housing markets to at least a stabilized number but to also help stabilize the financial market. Doing this was huge it allowed for Fannie Mae and Freddie Mac to take a step out while the fluctuation in the market was unstable and not being profitable and allowed to step back in when the market stabilized out. This was so that not only did they get to avoid the losses but it helped mitigate the losses from the taxpayers. Along with that the government help build programs for the struggling investors and homeowners to refinance or get extra aid for their mortgages to try and lower the foreclosure and bankruptcy numbers. This was impeccable because it help slow down the amount of houses going into the foreclosing market and help kept people in homes and giving them places to live and rest their heads at night. As for the federal reserve they lowered their rates at a faster pace than ever before even hitting some of the lowest numbers we had ever seen in the federal funds rate. This allowed for more liquidity throughout the financial system itself to help assure that it was going to stabilize. Along with they the Feds offered credit for more institutions that way smaller and some larger banks would be able to start borrowing and stabilizing themselves out within the market. Before this crisis has occurred the only ones that could borrow credit lines from the Feds were commercial banks only. Lastly but of course at the very least the take over of Bear Stearns large liabilities that they have taken on. Which helped a large playmaker from leaving the financial industry. Moving on to the response that came from congress as we seen was the multiple bailouts they kept providing to help the market from going deeper then it already was to the land of no return. Although initially they did not pass this plan due to the fact that they thought it was unnecessary and because they only thought it was proposed to even out the stock market at the cost of the taxpayers expense. The 700 billion that was put into play because of this plan did a lot to help build the economy and the path of recovery. The following table shows how the funds were dispersed and spread across the industry (Exhibit E). These involvements and responses were essential to assuring our market from failing farther then we could even imagine.
To say the government was the only ones who responded to this crisis and help dig out of the crisis would be saying the least. The involvement from Private Sectors, The Regulatory, and large financial firms played a part as well. Although the Private Sectors want for making short term gains and profit played apart of the financial crisis they also provided a solution in help of getting out of the crisis. They provided funds for banks who did not have enough capital to cover the the value of potential and occuring loan losses. This was beneficial because it allowed for the banks to stay afloat rather then falling and having to declare bankruptcy. As for the regulatories response to the financial crisis was important as well as it gave buffers for small and larger financial institutions. They also did a refinement to the Basel II and made adjustments and approved some flaws and weaknesses and created a new Basel known as Basel III. This was important because if they would of never made adjustments to these flaws it would of always left the door open for this to happen all over again and to say our economy can handle a crisis like this one all over again leaves me curious. Not saying that we won’t run into another crisis in the future but saying running into a similar one like this in my opinion is unlikely. Now for the response to the crisis from large financial firms were important. As previously mentioned above I mentioned how the Feds took on the liability for Bear Stearns well that was only partial of the solution the reason they took on the liabilities was so that the large financial bank JP Morgan could take them over to prevent them from declaring bankruptcy. Another thing that large financial institutions were doing in response to the crisis was starting trusting other banks again and giving out loans and helping one another financially with loans and started purchasing more funds again. This allowed for banks to start building trust amongst all the other banks. When the banks started getting on the same page the financial industry could start to improve. As for large insurance firms stopped lending out capital and their safe assets to maintain capital and coverage for insurance purposes. As for other major firms they either got caught with loans that they eventually paid off with large interest rates or eventually lost control over their firm. Some firms could not withstand the damage that was already done and could no long substantially maintain their firm in the market. Some firms had the Feds take them over during the crisis in return of financial payments for doing so that some are still paying on today. These responses from everyone are some of the key roles that were played and necessary to prevent the economy from vanishing and becoming completely abolished.
After going through what lead us to this crisis, what happened during the crisis, and the responses to the crisis that helped get us out of the hole. It is time to look at what happened in the years after this crisis. Looking at how the economy improved and how the responses that were the solution then play apart now. So pretty much the aftermath and overview of the crisis. The responses that were given and used to get out of the crisis for the most part were successful as it did get us out of the crisis. That’s the way I look at it at least. For instance in 2008 the market crashed and the Dow dropped over 700 points in one day. Today the market has seen some of its highest numbers in forever breaking records. Excluding the fluctuation that the Dow has been experiencing the past few weeks. Not only has the stock market bounced back from a very ugly time so has the housing market. The housing market is to reaching all time high numbers and exceeding in exponential growth. This is coming from a time where houses have been purchased back by the banks due to the foreclosures and bankruptcy of many individuals. It was a devastating time and to see things turn around it just joyful. Although it all looks good on paper and seems like everything is excelling and all good there is still some aspects the 2008 financial crisis plays in today’s society. Businesses died out people lost their money, their jobs, their homes, and just about everything. There are people that participated in the financial crisis of 2008 who just do not trust the market and may not ever trust the market ever. One person was talking about all of their investments they made back in 2008 and said ” you think they will come back, and it never came back” (money). Another depressing factor was wages people were making during the crisis and a while after the crisis but now numbers are finally going up and the average household earnings have actually reached an all time high as seen in the graph (Exhibit F). This is great news as it shows that things are looking up and wages are increasing which helps retract, retain, and reward good employees. One of the main reason of the household earnings increasing is due to the fact that minimum wages have increased and are starting to help meet financial needs requirements. Another response that came from the crisis was who and the process people have to go through to achieve a loan/mortgage. During and before the crisis just about anyone was able to walk into the bank and get a mortgage. Now they have a more secure process that they follow to help prevent giving loans to those who simply would not be able to afford the payments to help prevent foreclosures and bankruptcy. Although housing prices and mortgages stabilized out and are becoming a healthy market there are just not many people looking to purchase houses for financial reasons. Most young people are forced into renting due to all their loans and the job market being unstable for entry level employees and fresh out of college employees. Another one of the responses that got us out of the crisis was all of the bailouts the feds and congress gave out. Although they put a lot of money out there to save a lot of larger banks and some smaller banks most of the banks have paid their loan back with heavy interest. So to say that the banks were able to actually make the initial payments was great and to include all of the interest they paid shows that they are doing well and people are starting to utilize banks more for loans and mortgages. Although it’s not where we want it to be it is still par and gives them enough money to stay stable. Lastly but not least the trust amongst banks have started and built trust with one another again so they can rely on one another before they have to reach desperate measures such as borrowing from the feds.
So to conclude this report it is safe to say that we were going through a very rough time in the era of 2008. Although before the crisis began people were doing well and making lots of money being involved in the market. In this case especially the housing market homeowners, and investors were taking full advantage of the housing market and the low interest rates. Everyone was buying houses, well that was until the interest rates became to high and the housing prices became to low. Once this happened this is where we started see some conflict and leading factors of the financial crisis. People simply could not afford payments with the high interest rates and to make matters worse they could not just sell their houses for what they have in them because of how bad it dropped and no one was buying houses. Onces all these factors started taking place the government, feds, congress, and large financial firms realized something needed to be done which is why they had countless meetings to start gathering data to build a plan that would fix the market and they did. With trillions of dollars pumped in for bailouts, with takeovers from the feds and large banks, lower interest rates, etc. These responses from these groups were the main reason we were able to get out of this crisis. Now as you can see things have significantly improved although there is still things that haven’t improved and just may never improve the stock market reaches a new high, banks stabilized, mortgage rates and backed securities are healthier, and the housing cost and market has even hit their high numbers. This is all goods news that shows that we did a nice job getting out of this crisis. It was definitely a close one that almost cost us our economy. One thing that we could say lead to this crisis from early on was greed people wanted money and to make the most money possible regardless of the effects in the long run. They were caught up in the here and now profit instead of considering what could happen and what direction this could make a turn towards. Although we were able to get out of this crisis and bonus back to say we would be able to do it again would be pushing it. I feel that we got pretty lucky with this one and if one were to happen any time soon anyways I don’t know how confident I am of us bouncing out of it.
Graphs: Exhibit A:
https://www.fool.com/investing/general/2015/02/28/25-major-factors-that-caused-or-contributed-to-the.aspx (paragraph 1)
https://www.thebalance.com/what-caused-2008-global-financial-crisis-3306176 (Graph A)
https://www.investopedia.com/terms/b/baselii.asp (paragraph 2 basel II)
https://www.forbes.com/sites/stevedenning/2011/11/22/5086/#16e5ee1cf92f (paragraph 3 2005)
https://www.forbes.com/sites/stevedenning/2011/11/22/5086/#16e5ee1cf92f (paragraph 3 2005)
https://www.thebalance.com/2008-financial-crisis-timeline-3305540 (paragraph 4 2006)
https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp (paragraph 5 environment)
https://www.thebalance.com/2007-financial-crisis-overview-3306138 (paragraph 6 2007)
https://www.thebalance.com/2008-financial-crisis-timeline-3305540 (Paragraph 7-8 2008)
https://snbchf.com/history-2/financial-cycles/financial-crises-in-comparison/ (Paragraph details)
https://www.thebalance.com/mortgage-crisis-overview-315684 (Paragraph details)
https://www.investopedia.com/university/credit-crisis/credit-crisis6.asp (Paragraph responses)
https://money.cnn.com/2017/12/01/news/economy/recession-anniversary/index.html ( Paragraph overview)
http://graphics.wsj.com/how-the-world-has-changed-since-2008-financial-crisis/ (Last Paragraph)