Financial Crisis Of 2008 Essay

2303 words - 9 pages

The Financial Crisis of 2008 was the worst financial crisis since the Great Depression, however a lot of American’s want tougher law of be enforced against executives and companies they think started the mess (Jost/Misconduct). Civil charges have been brought up against major banks for misleading investors, but a federal judge rejected a proposed settlement saying it was too lenient (Jost/Misconduct). The flood of subprime mortgages roiling the housing market in the U.S. is also causing the worldwide credit crisis (Jost/Crisis). Investment banks everywhere are taking billion-dollar losses, forcing them to revalue their belongings (Jost/crisis). This crisis started under the surface for many years then emerged into the public in March 2008 when cash-strapped Bears Steams were being forced to sale to JP Morgan Chase; they did this for a worthless $2 a share (Jost/Misconduct). The Financial Crisis happened because of these 5 things; systemic risk, too big to fail banks, payment systems, credit rating agencies, and hedge funds.
Systemic Risk
What is this?
Systemic Risk is a risk that triggers an event, for example, the failure of a large financial firm. This can and most likely will seriously harm the broader economy and impair financial markets (Bullard). In finance, component or groups of a system can be contained and not harm the entire system (Bullard). There are systemic concerns that prompted U.S. Department of the Treasury and the Federal Reserve to act to prevent several large firms to go into bankruptcy (Bullard). The economy could benefit from reforms that are reducing systemic risks, for example creation of an improved regime that would solve failures of big financial firms (Bullard).
Involvement of Government
The informational asymmetries of commercial banking and the contagion risk proper of the dullness have justified the growth of strong safety nets, guarantees, and government involvement in critical situations (Lagos). These realities require outstanding moral integrity, political independence with their heads, and top-level technical expertise (Lagos). One way the government looks at this financial crisis is just a symptom of a deeper crisis which is a crisis of its own.
• The growing executive compensation
• Manager’s capitalism has replaced owner’s capitalism
• The failure of gatekeepers , this includes boards of directors, career politicians, auditors, and Wall Street analysts
• The management of earnings
These are the Bogle cities particular issues that caused the financial crisis. Mark Roeder, a former executive at the UBS, conducted an analysis that suggested that large-scaled momentum “played a pivotal role” in the global financial crisis, also known as the financial crisis of 2008 (Lagos).

Involvement of Private Sector
The Reserve Bank has been verbal that they are uncomfortable about wealthy Asian governments using savings when they use the savings to shop around for assets (Saulwick). High levels of public sector...

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