This website uses cookies to ensure you have the best experience. Learn more

The Sub Prime Mortgage Crisis Of 2008

1155 words - 5 pages

Introduction

The Sub-Prime Mortgage Crisis of 2008 has been the largest financial crisis to take place since the end of the Great Depression. It was the actions of individuals and companies that caused this crisis. For although it could have been adverted, too much money was being made by too many people in place of authority to think deeply on the situation. As such, by the time actions were taken to attempt to rectify the situation, it was already too late. Trillions of dollar of tax payers’ money was spent trying to repair the situation that was caused by the breakdown of ethics and accountability in the private sector. And despite the government’s actions to attempt to contain the crisis, hundreds of thousands lives were negatively affected before, during, and after this crisis.
The Warning Signs

Although the crisis came to head in 2008, there were people who had realized that trouble was coming for years. The largest warning sign was the amount of credit in the market place. Many of the big companies and banks had very little capital, and the lack of capital was brought on by the housing bubble. Companies were lending too much money to people who could not pay them back. And even before people started to default on their mortgages, people could see that this was a problem. During a meeting with the Senate Committee on Banking, Housing, and Urban Affairs in January 2007 the staff of the Federal Reserve admitted “that they were aware of [the] problem in the housing issue three years earlier” (Dodd). And they were not the only ones. As far back as 2001 there were people who saw the danger that sub-prime mortgages were and who were trying to have bills passed to stop the bad lending that was going on, but no one wanted to listen. Sheila Bair, former Chairperson of the Federal Deposit Insurance Corporation, said, “It's very, very difficult in Washington to get political will to move anything when everybody's still making a profit out of it” (Bair). So even though people could see the danger of sub-prime mortgages, nothing was done to stop it.
The Causes

The amount of lending that was taking place in the market place was one of the main causes of the crisis. Lending money to people and taking risks is an important part of a capitalist market, however the lending must be done wisely. Large companies were lending money to each other and they all have debts that they would never be able to pay off and had to constantly refinance. These debts tied the companies together, and by the time the housing bubble popped every company was so interconnected that the failure of one could destroy all the others. However, the thought that one of the large companies might fail never occurred to anyone. As such there was a lack of accountability because people underestimated the danger these companies were in and did nothing to stop their risky lending habits. People were given mortgages they would never be able to afford to repay but those mortgages were...

Find Another Essay On The Sub-Prime Mortgage Crisis of 2008

The never-ending financial crisis of 2008

762 words - 4 pages Since it began in 2008, the US has faced what is being called the “great recession.” It is 2013, and it is clear apparent that it is a “recession” longing to be cured. Through the works of Putnam, Sum et. al., Wisman, and Colander, we can better understand this crisis and look for the best way to get out of it. To begin, Robert Putnam describes what has occurred in the U.S. over the past several decades. He states that over the past several

The 2008 Financial Crisis Essay

1529 words - 6 pages introduction The 2008 financial crisis led to a sharp increase in mortgage foreclosures primarily subprime leading to a collapse in several mortgage lenders. Recurrent foreclosures and the harms of subprime mortgages were caused by loose lending practices, housing bubble, low interest rates and extreme risk taking (Zandi, 2008). Additionally, expert analysis on the 2008 financial crisis assert that the cause was also due to erroneous monetary

Financial Crisis of 2008

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

The 2008 Financial Crisis

1206 words - 5 pages Introduction The current financial crisis happened on 2008 and lasted for quite a while. It caused different levels of economic recessions in varying regions all over the world. Government officials of financial institutions and economists try to rectify the financial mistakes and lower the risk of future financial crisis. This essay will take United Kingdom financial system for instance, analysis its financial regulations. Firstly, it gives

The 2008 Financial Crisis

2612 words - 11 pages The 2008 financial crisis witnessed how fragile financial institutions and the whole financial system could be. In the U.S., lots of banks touched the edge of failure, requiring extensive assistance from the government. Some received bailouts in forms of capital injection or loss sharing agreement, while others entered shotgun marriage with healthier financial institutions arranged by Federal Deposit Insurance Corporation (FDIC). Among banks

The Financial Crisis of 2007-2008 and The Federal Reserve

3067 words - 13 pages -4.1 Loose Fitting Monetary Policy -4.2 The relevant between federal fund rate and housing boom and bust. -4.3 Did the global saving glut push the interest rate down? -4.4 Comparing with other countries’ monetary policy. -1.5 The interaction between subprime mortgage problem and monetary factor. Conclusion Introduction The financial crisis of 2007–2008 is considered by many economists the worst financial crisis since the

The Bank of England and The 2008 Financial Crisis

766 words - 4 pages Due to the 2008 financial crisis, the Bank of England employed quantitative easing (an unconventional monetary policy used to stimulate the economy) by cutting interest rates down to 0.5 % and has been keeping it until now. The Bank made the decision to keep QE and the interest rate unchanged in March. Spare capacity (the ability of a firm to produce more of a product than is now being produced) is used by the BoE to justify its use of forward

Factors That Influenced the Global Financial Crisis of 2008

631 words - 3 pages Since the years of the great depression in the 1930s, the global financial crisis of 2008 is arguably the worst to have hit the world. The crisis began with the escalation of prices in the property market creating a liquidity crisis. It had massive consequences in varying sectors of the economy. The financial, property and mortgage sectors were hit hard by the crisis. Large financial institutions collapsed while stock markets experienced

The 2008 Housing Crisis: A Brief Overview of Causes

2200 words - 9 pages considering the causes of this crisis. Conclusions It is apparent that the combination of low interest rates, poor lending practices, and the consumer’s eagerness to purchase now, pay later were two major causes of the 2008 housing crisis. Financial institutions were originating and purchasing high-risk mortgage loans and making great profits. Individuals were able to obtain larger home loans because of low interest rates. Individuals were also able

Awareness of Risk during the 2008 Financial Crisis

2210 words - 9 pages will try to illustrate the hidden effects of human behaviours on awareness of risk during 2008 financial crisis. Admittedly, however, plausibility still exists in partial improvements beforehand. 2008 Financial Crisis seemed to come out of blue and shocked the whole world in the first place but was soon concluded by experts as a consequence of systemic risk. (Federal Reserve Bank of Atlanta, 2009) Characterizing such a risk are three consequences

The 2008 Housing Crisis: A Brief Overview of Causes

1119 words - 5 pages a housing crisis. Leading to the bursting of the housing bubble were three major contributors: a cultural change in American society, a push by the federal government to get people to home ownership, and subprime lending by financial institutions. These events coincided to create the 2008 housing crisis. Many people ended up with homes they could not afford, and lending institutions ended up with homes that were underwater. Cultural Change At one

Similar Essays

The Housing Crisis: A Result Of Sub Prime Adjustable Rate Mortgage Loans

1159 words - 5 pages While tax cuts, refinancing and subsidized federal loans can temporarily solve a housing crisis, it can never take out the roots of the weed out of the ground. What was it that threw us into a foreclosure meltdown in the first place? Did people suddenly lose all their money? Perhaps the government failed in some way? No. The fact of the matter is that people began to borrow money through a sub-prime, adjustable rate mortgage loan and then

The Sub Prime Crises Essay

1479 words - 6 pages The Subprime Crisis The subprime mortgage crisis is an ongoing event likely to affect buyers who purchased homes in the early 2000s for a long time. These effects will translate to changes in the housing market, consumer spending, changes in lending practices, and perhaps, revamping of the home loan system. What is meant by the

Bank Of America And The Mortgage Crisis

1002 words - 4 pages Bank of America and the Mortgage Crisis Sharply rising mortgage foreclosure rates during the economic recession between 2007 and 2009 have drawn a significant amount of attention from scholars and policy makers. There has been an abundance of research probing factors, particularly sub-prime lending and neighborhood characteristics, contributing to foreclosures (Li). The present paper, investigated causes of the mortgage disaster with

Causes Of The 2008 Financial Crisis

972 words - 4 pages Financial crisis The financial crisis occurred in 2008, where the world economy experienced the most dangerous crisis ever since the Great Depression of the 1930s. It started in 2007 when the home prices in the U.S. Dropped significantly, spreading very quickly, initially to the financial sector of the U.S. and subsequently to the financial markets in other countries. The victims in the United States were: the largest commercial banks, the