Subprime Meltdown & Cause And Effect Of Rising Oil Prices

3208 words - 13 pages

Where the crises started from?During the early part of the 21st century, when the housing boom and economic recovery in the United States encouraged a heavy spiralling in subprime mortgage lending. This increase saw a parallel increase in the securities offered through a pooling of such subprime mortgage loans through the process of "securitisation".Investors moved from buying pooled mortgage loans to what is referred to as "non-agency transactions", ones where the willing investor undertakes the risk of the underlying mortgage loan. Such a transaction consisted of the issuance of securities out of a pool of mortgage loans without any backing of governmental funds. This contagion gripped the financial markets and manifested itself in a situation where investors jumped in significant numbers to take advantage of the booming housing market that prevailed in the early years of the new millennium (Foote & Willen, 2007).Capital markets engaged in technological innovations for the riskier category of investors, which can be described like a "diverse maturity mortgage product," which led to pooling of mortgage loans with varied credit ratings into securities. Many conditions conducive to subprime lending and securitisation of such loans induced investors to take the risk of investing in such loans. However, the expectations contained in these risks did not materialise. Fears grew of a threatening economic crisis that might result from delinquency for such loans not just in the United States but all over the world (Foote & Willen, 2007).How and why it was started?The reasons for an increase in lending to such borrowers are varied. Firstly, favourable conditions existed for the residential housing market in the period between 2002 and 2005. Interest rates were low when compared to historical averages and home prices were appreciating in most markets. For example, the appreciation rate in the third quarter of 2004 in the U.S. housing market was a staggering 17.27 percent and the average appreciation rate in the years 2004 and 2005 remained around 13 to 14 percent. This created an equity cushion for the subprime borrowers, with the result that they always had the option of refinancing their loans or pulling their equity out of the properties if they experienced financial problems (Ryan, 2008).Further, the underwriting criteria became more borrower friendly. For example, a subprime borrower having a credit score between 450 and 680 could obtain a mortgage loan with almost no down payment. The reason for a change in the underwriting criteria can be attributed to the challenge of maintaining the affordability of home purchases. The significant acceleration rate in house prices made house purchases less affordable for many buyers. In order to maintain, and even increase, loan origination, lenders offered mortgage loans on borrower friendly criteria (Ryan, 2008).Additionally, limited documented proof of income and assets, relaxed monthly payments,...

Find Another Essay On Subprime Meltdown & Cause and Effect of Rising Oil Prices

Increasing Oil and Gasoline Prices Essay

1270 words - 5 pages exports. So again even as a whole the conflict in the Middle East isn’t a valid reason for this jump in oil prices. These events can have an effect on oil prices. However the evidence only points to a partial effect, not as much as some people would have you believe. The next most common used cause for the increase of oil prices is the explanation of supply and demand. Currently the world uses 85 million barrels a day, and currently the supply per

Oil Prices and Economic Growth Essay

1194 words - 5 pages decline, as well as these researchers also analyzed Granger causality between both variables. The result of Granger causality test proved that oil prices Granger cause U.S. economy before 1973 but no longer Granger cause was found from 1973 to 1994. Recently, Hamilton (2003) and Jimenez and Rodríguez (2004) also confirms the non-linear relationship between the economic growth of U.S. economy and increases of oil prices The quantitative exercise

Oil Prices and Economic Growth

1194 words - 5 pages economic decline, as well as these researchers also analyzed Granger causality between both variables. The result of Granger causality test proved that oil prices Granger cause U.S. economy before 1973 but no longer Granger cause was found from 1973 to 1994. Recently, Hamilton (2003) and Jimenez and Rodríguez (2004) also confirms the non-linear relationship between the economic growth of U.S. economy and increases of oil prices The quantitative

Cause and Effect of Divorce

941 words - 4 pages PAGE PAGE 1 Divorce Running head: Cause and Effect of DivorceKevin KinkadeUniversity of PhoenixCOMM/105Laurel TaronMarch 2010Cause and effect of divorceCases of divorce are increasingly becoming common in the American society. The legal acceptance of divorce has been dictated by the evident rise in infidelity, substance abuse, and family violence in the community (Clarke-Stewart, 2006). For opponents of divorce, there is neither a moral nor

Cause and Effect of Divorce

517 words - 2 pages Cause and Effect of Divorce “DIVORCE” – Just the sound of such word in any married couple or children’s ear can cause great agony that can even become terminal. Research and personal experience, has proven that in today's society, divorce is more common amongst newlyweds. Since 2009 the rate of divorce has increased to approximately forty percent, There are three out of every ten marriage that ends up in divorce before it reaches the stage of

Cause and Effect of Kristallnacht

708 words - 3 pages Cause and Effect of Kristallnacht The Holocaust was a great tragedy, but it didn't happen overnight. It was a long process of demeaning Jews as subhuman. This started as early as 1933 when Hitler first came to power. However, Kristallnacht, or The Night of the Broken Glass, was like the dam bursting. It was when the government of Germany encouraged its people to loot and burn Jewish shops, synagogues, and schools. In addition, many Jews were

Cause and Effect of Drinking

835 words - 4 pages stress of classes. Depending on how much alcohol is consumed, and in what time period it is consumed, drinking can cause the following problems: slurred speech, drowsiness, vomiting, upset stomach, headaches, breathing difficulties, distorted vision, impaired judgment, and even blackouts. College students generally associate parties with drinking. They assume that if you are at a party, alcohol must be involved. Especially on four year campuses that

Cause and Effect of Cheating

1746 words - 7 pages from an internet source, or using someone else’s original work electronically and not giving them the proper credit the result is still plagiarism (Lowe, 2003). With the ability tobuy an essay online some students are using this method as a form of succeeding in their education. With students taking an easy way out of doing assignments the question of why studentsplagiarized arises. A number of factors that may cause a student to plagiarized are

Escalating Oil Prices and the Global Economy

2285 words - 9 pages economic theory, a decrease in supply will yield higher prices.These are some of the reasons The United States must offer stability and continue to have troops in the area, intervening when the world's oil and its prices are in jeopardy. Currently crude oil prices are rising due to the bombings in Saudi Arabia. It has continued to soar, to more than $24 a barrel, up 34% from one year ago, the highest level since the 1991 Persian Gulf War. (3) This

OPEC and Their Control on Oil Prices

1499 words - 6 pages the world, and a majority of the world's oil reserves, producing 29.9% of America's imported oil ("How dependent", 2008). The Organization for Petroleum Exporting Countries, referred to as OPEC, was created in Baghdad, Iraq, in September of 1960. Baghdad is the location that was chosen for the original OPEC members, Kuwait, Saudi Arabia, Iraq, Iran, and Venezuela, to come together and discuss oil prices. Between 1961 and 2007, OPEC increased its

Research and Evaluation: Fuel Oil Prices

701 words - 3 pages other market commodity, is set by the forces of supply and demand. This is true for fuel oil as well as the crude oil from which it is made. According to the American Petroleum Institute (API 2004), "the cost of fuel oil has increased recently because bad weather in the Gulf of Mexico and continued instability in some key oil producing regions have restricted production, boosting crude oil prices. Today, a barrel of crude oil sells for more than

Similar Essays

Causes Of Rising Global Oil Prices

996 words - 4 pages issues have been discussed above in details. It is now the responsibility of government to ensure that such economic policies are designed and implemented that could lead to the decreased oil prices. This would not only benefit the US population, but also the credibility of the government officials will be increased. Increasing global requirement for oil, principally in rising countries like China and India, is enormous supplies, with increasing

Effects Of The Rising Oil Prices On The Transportation Industry

1944 words - 8 pages The transportation industry relies on oil to keep its road, rail, maritime and air networks operating. As time goes on oil is becoming increasingly scarce resulting in price increases. This research essay will delve into the effects of rising oil prices will have on the transport industry along with solutions. Oil is the main driving force behind the transportation industry as no other alternatives burn as cleanly, or are as safe to

The Effect Of Oil Prices On The Food Industry

1204 words - 5 pages When the oil price skyrocketed in 2011, most industries had to bear this price, and the food industry was no exception. The present food sector, including its price is highly transport and fuel dependant. The relationship between fuel and the food industry is systematic and independent. The rise in fuel prices leads to an increase in the price of food. It is important to note that most food-producing firms and farms use machines that hugely

Oil And Gas Prices Essay

1981 words - 8 pages average of $200 to $300 in gasoline every month. Oil and gas continue to be major contributors to the stability or instability, of the larger economies, such as those of the United States, Germany, and Japan, and the third-world nations as well.The world, as a whole, depends greatly on oil and gas as their main energy source. Our economy has continuously shown that it is seriously affected when gas and oil prices are on the rise. Over the last