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Following the sub-prime crisis and the impact of 'Toxic' debt is there a future for the securitization of commercial property - Essay Example

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These banks were themselves responsible for such packaging of complex credit derivatives. It was observed that majority of their asset base turned out to be poisonous…
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Following the sub-prime crisis and the impact of Toxic debt is there a future for the securitization of commercial property
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Extract of sample "Following the sub-prime crisis and the impact of 'Toxic' debt is there a future for the securitization of commercial property"

Download file to see previous pages But soon turbulence came with sudden loss of confidence within the securitization and financial engineering sector. The present statistical model for assessing & pricing credit risk can be blamed for the disastrous situation that engulfed the entire financial world. The most surprising fact about the crisis was that it originated in those countries which were believed to have the most efficient risk management technology. (Caprio, Demirgüç-Kunt & Kane, 2008, p. 2).
With the unfolding of the crisis, the financial world witnessed a series of unpredicted and unprecedented events which uncovered the fault of AAA credit rating system used in UK banks for more than 150 years. The crisis, also known as meltdown, even highlighted the default of US safety net for covering major insurance banks; investment banking and government sponsored housing finance companies. Downfall in the major economic drivers led to sharp plunge in world wide stock and capital markets.
This crisis soon migrated from US to other developed countries and economies like that of Australia, Ireland, and Germany. It can be estimated that the loss caused by this financial crisis lies in between the ranges of $1 trillion to $2 trillion (Caprio, Demirgüç-Kunt & Kane, 2008, p. 2).
The crisis that engulfed the financial market since august 2007 had its origin in the housing mortgage market of the United States. Housing markets in other countries like Australia, Canada, Spain, and United Kingdom were also facing high rise in prices along with the highly leveraged mergers and acquisition. But none of these countries faced financial crisis due to the housing bubble, so this makes the fact clear that there were certain distinguished features with in the US housing finance system that gave birth to such enourmous financial crisis. The prime factors can be segregated as below:
Housing construction peaked in the United ...Download file to see next pagesRead More
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