StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...

The Credit Crunch of 2007-2008 - Essay Example

Comments (0) Cite this document
Summary
The rise in acceptance and popularity of securitized products in early 2000s resulted in a torrent of low-priced credit as lending standards fell. One of the prime reasons for the relaxation in regulations for loan seekers were public policies encouraging people to legally own their houses and hence improving security of the area. …
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER92.7% of users find it useful
The Credit Crunch of 2007-2008
Read Text Preview

Extract of sample "The Credit Crunch of 2007-2008"

Download file to see previous pages As shown in the diagram underneath, this led to rising housing prices since decades. In 2000, the rate of increase of house prices was rising at unsustainable levels, much faster than they had in the last decade. Sub-prime mortgages (mortgages to high risk customers) began to rise due to availability of cheap credit (Mizen). The low interest rate environment stimulated upsurges in mortgage backed financing and hence considerable increases in house prices. It encouraged investors (financial institutions, such as pension funds, hedge funds, investment banks) to design instruments that offer yield enhancement such as subprime mortgages. The bullish attitude of Wall Street led to creation of complex structured products such as collateralized debt obligations (CDOs) and a lot of repackaging of high-risk mortgage backed securities. The credit and house price bubble led to a real-estate boom and eventually to a surplus of unsold homes, which triggered U.S. housing prices to peak and before declining and bursting in mid-2006. Subprime borrowers began to default on their loans as real estate prices decreased further.
The default on a significant ratio of subprime toxic assets produced cascade effects in financial markets via the securitized mortgage derivatives into which these mortgages were bundled, to the balance sheets of investment banks and hedge funds. The vagueness about the value of the securities collateralized by these mortgages spread chaos and concern over the soundness of loans for leveraged buyouts. That led to the freezing of the interbank lending market in August 2007, collapse of key financial institutions such as Lehman Brothers and triggered the credit crunch crisis. 2. Economists classify macro-economic indicators as leading, lagging, or coincident. Define each classification and give two examples of each, relating them to the recession that began in 2007 and the recovery that is now under way. ? Economic indicators are periodical statements by the government and private institutions that describe the health of a country's economy. Economist classify these indicators into leading, lagging or coincident kind that are described below in detail: Leading Indicators: Leading indicators are economic indicators that predict future events. They are foreign exchange indicators that change beforehand the change in the market or economy has occurred. Examples of leading indicators may include bong yields, inventory variations, stock prices and insurance claims. Economic establishments and central banks study leading indicators in expectation to fluctuations in expected interest rates. A forex-leading indicator is a pointer that advises the trader to buy or sell before a new trend in the market commences. Leading indicators, however, are difficult to recognize and could lead to misleading results or interpretations if not analyzed by an experience trader. Two examples leading indicators for the financial crisis of 2007 are stock prices (500 common stocks) that reduced by 8% in 2007 (The Conference Board) and Building permits that reduced by 16% leading to a 40% decline in US Home Construction Index. Lagging Indicators: Lagging indicators are indicators that follow an economic event. These indicators usually exist three to twelve months after the economy. Lagging economic indicators are the confirmation to outline the peaks and troughs that ...Download file to see next pages Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“The Credit Crunch of 2007-2008 Essay Example | Topics and Well Written Essays - 1000 words”, n.d.)
Retrieved from https://studentshare.org/macro-microeconomics/1425531-the-credit-crunch-of-2007-2008
(The Credit Crunch of 2007-2008 Essay Example | Topics and Well Written Essays - 1000 Words)
https://studentshare.org/macro-microeconomics/1425531-the-credit-crunch-of-2007-2008.
“The Credit Crunch of 2007-2008 Essay Example | Topics and Well Written Essays - 1000 Words”, n.d. https://studentshare.org/macro-microeconomics/1425531-the-credit-crunch-of-2007-2008.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF The Credit Crunch of 2007-2008

Bank Lending - Principles for the Management of Credit Risk

...Bank Lending Principles for the management of Credit Risks Word Count: 2346 {Introduction to Conclusion} Contents of the Report Introduction What is Credit Risk? Risk Management Structure Risk Mitigation: Secure Environment to grant Credit: Abbey National plc Conclusion References Introduction Credit Risk Management is an activity of paramount importance to any financial institution. It is essential to the long term success of any banking organization. Sound credit risk management principles increase the stakeholder value by providing for ‘value creation’, ‘value preservation’ and ‘capital optimization’. Most of the serious banking problems can be traced to poor credit standards for counterparties and poor portfolio risk...
9 Pages (2250 words) Coursework

2007 Special Olympics World Summer Games

The particular aspects of the marketing strategies applied during these Games are analyzed highlighting the importance of following specific rules when using marketing in the area of sports activities. On the other hand, the particular characteristics of marketing are presented taking into account the fact that marketing is significant for the successful completion of sports activities worldwide. More specifically the financial support offered to athletes and sports organizations because of the promotion of specific products/ services helps the sports activities to be more approachable to people of all social classes. In the case of Special Olympic Games, the development of appropriate marketing strategies can have two significant...
11 Pages (2750 words) Assignment

Integrated Marketing Communications Programme for Crunchy Crunch Company

The Crunchy Crunch Company (CCC) has been in the business of making crisps and other snacks for many years. They want to build on their reputation for traditional health-conscious consumers. Therefore, they have made the brave decision to move away from the traditional products it has in its portfolio and are about to launch a range of healthy snacks. The brand name for this range is "Fit" to reflect the healthy nature of the products and the people consuming them. So far, four varieties will be available: Fit Fruit (Fruit and corn-based snack) Fit Quiche, Fit Frosty (a savory ice cream) and Fit Crackle (a crisp like product).

“According to the American Marketing Association, marketing research is the systematic g...
8 Pages (2000 words) Case Study

Consumer Credit Act 2006

The key provisions are set to be implemented by October 2008 and the focus of this analysis is to critically evaluate the impact of the Act vis-à-vis consumer protection. Consumer Minister Ian Macartney asserted that “The Consumer Credit Act beefs up protection for borrowers, especially those with debt problems. It helps them challenge unfairness and protects them from dishonest lenders who try to rip them off. Our aim is a market that protects all consumers and is fair to honest lenders, leaving those without scruples nowhere to hide”. Whilst this meritorious objective of the Act is unequivocal, it is submitted at the outset that the efficacy of the provisions will inherently be reliant on proactive enforcement...
15 Pages (3750 words) Assignment

Credit Crunch in the UK

To sell more profitable subprime mortgages, mortgage companies bundled the debt into consolidation packages and sold the debt on to other finance companies. In other words, mortgage companies borrowed to be able to lend mortgages. For example, the lending was not financed out of saving accounts (Mortgage Guide).

These mortgage debts were bought by financial intermediaries. The idea was to spread the risk, but, actually, it just spread the problem. Usually, subprime mortgages would have a high-risk assessment rating. But, when the mortgage bundles got passed onto other lenders, rating agencies gave these risky subprime mortgages a low risk rating. Therefore, the financial system denied the extent of risk in their balance...
8 Pages (2000 words) Case Study

Company Law UK: Non-Executive Directors and the Combined Code 2008

...UK Company law - Non-Executive Directors and the Combined 2008 Introduction: It is seen that the UKM Companies Act has laid lot of emphasis on the matter of duties and responsibilities of directors, especially non-executive directors (NED) in the matters of superintendence, control and management of companies, especially from the outside. Before entering into the deliberations of what NEDs owe the management of the companies in which they function, it is necessary to get an idea of what the Companies Act views NED. According to the Companies Act 1985 and also the new Companies Act 2006, there has been no definition of NED as such, and a lot about duties and responsibilities of NED would vest with the roles they perform. It also needs...
9 Pages (2250 words) Term Paper

Emergency Economic Stabilization Act of 2008 and How It Has Impacted the Financial Markets

Though there were objections from various quarters about the huge amounts of tax payer’s money being used in the bailout of huge corporates, the Act has been successful in moving the downturn towards a flat point and now has started slowly moving towards a recovery stage. The various programs under the EESA 2008 have played a significant role in the financial sector, housing mortgage, and banking institutions to save the institutions from complete disaster.

The Emergency Economic Stabilization Act is a huge taxpayer bailout designed to rescue the financial sector. The amount of money to be used is around $700 billion or $2000 per American citizen (Public mark up). Emergency Economic Stabilization Act of 2008 is al...
10 Pages (2500 words) Research Paper

Marketing Company of Toyota Camry 2007

...Running Head: Term Paper Marketing and Section # of Toyota Camry 2007 The product that has been chosen for this paper is the Toyota Camry 2007 model, the product has been marketed to the masses using various methods including print ads as well as television advertisements. Here is some background information on the company that owns the product, the Toyota Motor Corporation. Toyota The Toyota Motor Corporation was founded by kiichiro toyoda in 1937, the first ever car that was produced by the Toyota Corporation was its passenger car the Toyota AA, ever since its inception Toyota has never looked back, it is the largest automaker and has the highest sales in the US. Toyota globally employees around 320,000 people and have 522 subsidiary...
8 Pages (2000 words) Case Study

Irish Economy from April 2008 to April 2010

...Irish Economy April 2008 to April The Irish economy has urguably undergone a metamorphosis from how it used to be around 20 years ago. There aremany factors that can be credited with the success of the Irish economy over the years. The Irish government has done quite a lot to ensure that the economy of Ireland does not crumble completely in the midst of the ongoing financial crisis which has rocked many countries across the globe. Though the economy of Ireland can be said to be more secure than the countrys counterparts in Europe, a lot has happened over the last two years to affect the countrys economic situation in a big way. This paper sets to assess how successful the Irish government and the European Central Bank have been in running...
8 Pages (2000 words) Case Study

Variability in Oil Sardine and Indian Mackerel Fishery of Southwest Coast of India during 1991-2008

...Variability in Oil sardine and Indian mackerel fishery of southwest coast of India during 1991-2008: a statistical approach Marine fishery is distinguished by the wide variations in landings due to spatial-temporal factors as well as environmental effects. Fish populations respond to these variations in different ways: as short term (seasonal) and as long term (decadal). Special efforts have been made to modernize coastal fisheries and these efforts led to the major increase in fishery. The analysis of an 18 year time-series of oil sardine and mackerel landings from southwest coast of India is provided in the given work (Malabar Coast). The variability in landings during the period 1991-2008, which was a period with frequent and intense...
9 Pages (2250 words) Term Paper
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic The Credit Crunch of 2007-2008 for FREE!

Contact Us