Describe the financial crisis of 2007- 2009. What were the primary causes of this financial crisis?

Expert Solution

The financial crisis of 2007 was considered to be the biggest financial meltdown in the world history since the great depression in the 1930's. As it was a systemic collapse of the US financial system which had the ramifications across the globe, there was not one single factor responsible, but a combination of multiple factors that led to the crisis. Some of the major factors that led to financial crisis were

a) Inflated asset prices, mainly houses additionally some securities of specific characteristics.

b) Excessive lending and borrowing through the financial system and the economy.

c) Poor regulatory control, both in terms of the enforcement of legal system as well as how seriously the controllers played out the regulation.

d) In appropriate banking practices in sub-prime and other mortgage lending.

e) The mind boggling blanket of securities and subsidiaries often without transparency underlying these home loans.

f) The biased approach of statistical rating agencies where the issue of conflict of interest persist till date.

g) The compensation mechanisms in many financial institutions that defy the inherent logic of the times.

The above were some of the major factors that contributed to the global financial crisis. Now , coming to the model on which the crisis unfolded, the figure below provides some idea about the key players that were involved in the trigger of the financial crisis.

The originators is the bank that originates the loan, an Arranger typically another bank that evaluates the pool of assets the way it will be fed and the characteristics of securities to be issued , A Warehouse lender( typically a line of credit given to a loan originator to pay off the mortgage) , credit rating agency( an agency that rates the mortgage security on the basis of its inherent risk characteristics), Asset Manager( purchaser of securities who turn around and sell the securities), Investor( individuals and institutions that purchase securities).

The frictions and self interest of each of these players contributed to the financial crisis.

jeff jeffy answered 7 months ago

Causes of the 2007-2009 financial crisis and recession. Include: Relatively severity of the recession. Major causes discussed...

Causes of the 2007-2009 financial crisis and recession. Include: Relatively severity of the recession. Major causes discussed in the class notes, videos, and text. Actions the FED, congress, and president took to mitigate the crisis. “Take” on the crisis by the “Inside Job” video or alternative video on the crisis.

During the financial crisis of 2007-2009 What were some of the claims made? What evidence was...

During the financial crisis of 2007-2009 What were some of the claims made? What evidence was provided to support those claims? What were some underlying assumptions that were held by the FED? Did those assumptions end up being true? From an economic perspective, think about the mechanism by which quantitative easing would stimulate the economy. How would it impact different economic sectors?

Causes of the 2007-2009 financial crisis and recession. Include: a) Relatively severity of the recession. b) ...

Causes of the 2007-2009 financial crisis and recession. Include: a) Relatively severity of the recession. b) Major causes discussed in the class notes, videos, and text. c) Actions the FED, congress, and president took to mitigate the crisis. d) “Take” on the crisis by the “Inside Job” video or alternative video on the crisis. e) Comparison of this crisis to the current ongoing COVID-19 recession. Note that this is a short answer question, not a multiple choice question.

Discuss the causes and consequences of the 2007-2009 global financial crisis. What do you think prevented...

Discuss the causes and consequences of the 2007-2009 global financial crisis. What do you think prevented this financial crisis from becoming a depression? Financial regulation has undergone many changes in the wake of the crisis. Discuss some of these changes in regulation. What was the Canadian experience during the financial crisis? Why was Canada spared the worst of the financial crisis? HERE ARE THE KEY PARTS OF YOUR PAPER: 1. Introduction/Background Provide a brief description of the 2007-2009 global financial...

What was the Canadian experience during the 2007–2009 global financial crisis?

Evaluate critically, as a classical or Keynesian economist, what caused the 2007 to 2009 financial crisis....

Evaluate critically, as a classical or Keynesian economist, what caused the 2007 to 2009 financial crisis. Examine the causes that aggravated the financial crisis during the period?

Explain the repeal of the Glass Steagall Act and the Financial Crisis of 2007-2009

There are a number of reasons for the 2007-2009 financial crisis on Wall Street. Research that...

There are a number of reasons for the 2007-2009 financial crisis on Wall Street. Research that time period, and summarize the three key issues that caused this crisis. Finally, what things are in place to keep this from happening again? What would need to happen today to cause another financial crisis like this recent one or anyone from the past?

) What were the main vulnerabilities of the U.S. financial system prior to the 2007-2009 financial...

) What were the main vulnerabilities of the U.S. financial system prior to the 2007-2009 financial crisis?

What were some of the causes and impacts of the 2008 Financial Crisis?

Question