Question

In: Finance

During the summer and fall of 2008, the U.S. financial system and financial systems around the...

During the summer and fall of 2008, the U.S. financial system and financial systems around the world appeared to be on the verge of collapse. How did we get into this condition? What did we do to get out of it? How can we prevent another such scenario in the future?

Solutions

Expert Solution

The financial crisis during 2008 was basically regulation failure as in 2008 it started with sharp fall in the housing prices and regulatory authorities were unable the access the risk and its intensity in timely manner to take some corrective measures. The regulatory authorities were failed to regulate the subprime market and stabilize the system. The mortgage brokers offered risky mortgage loans to consumers and increased the default risk and these processes were not adequately regulated by the government regulatory authorities. Trading in mortgage backed securities spread risk in financial system and created risk of market failure.

To get out of the crises; the Housing and Economic Recovery Act was passed in 2008 in the US to restore consumers’ confidence in the domestic mortgage industry after the subprime crisis in the country.

We can prevent another such scenario in the future by putting some limit on excessive borrowing and risky investments by regulators and keeping transparency in the system by the financial institutions. Also the more stringent regulation on subprime lending can help to avoid such crises in future.


Related Solutions

The Financial Crisis, Long-Run Aggregate Supply and Inflation In the fall of 2008, the financial markets...
The Financial Crisis, Long-Run Aggregate Supply and Inflation In the fall of 2008, the financial markets suffered a major crisis that led to a large decrease in the willingness of banks and other financial institutions to lend either to each other or to consumers and businesses. Much of the investment in capital in the United States is financed by borrowing. Many businesses were unable to borrow. During this time period, the capital stock decreased as worn-out capital was not replaced....
During the 2008 crisis, the Eurozone countries applied different strategies to prevent a fall of aggregate...
During the 2008 crisis, the Eurozone countries applied different strategies to prevent a fall of aggregate demand. o Provide two examples of fiscal policies in face of an economic crisis and discuss their positive and negative effects on aggregate demand. Use the concepts of “multiplier effect” and “crowding-out effect”
The credit or financial crisis 2007-2008 started in the U.S. Many people in the U.S. have...
The credit or financial crisis 2007-2008 started in the U.S. Many people in the U.S. have got mortgages and later they couldn't pay back. These mortgage defaults caused many mortgage lending banks and companies to lose significantly and go bankrupt. As a result the housing prices started to fall causing a negative wealth effect and fall in consumer spending. The crisis was spread almost all of the countries in the world later. Why and how other countries were affected by...
The Financial Crisis and the Great Depression of 2008 and 2009. (ECON 4030- Macroeconomics) During 2008,...
The Financial Crisis and the Great Depression of 2008 and 2009. (ECON 4030- Macroeconomics) During 2008, the U.S. economy experienced a financial crisis and economic downturn that to some observers mirrored events from the 1930s. The crisis began with a boom in the housing market a few years earlier, the result of low interest rates that made buying a home more affordable. Increased use of securitization in the mortgage market further fueled the housing boom by making is easier for...
How the financial system impacts the U.S economy during and after the civil war? please be...
How the financial system impacts the U.S economy during and after the civil war? please be specific.
Are credit rating agencies to blame for U.S. financial crisis 2008? Why?
Are credit rating agencies to blame for U.S. financial crisis 2008? Why?
The global financial crisis (GFC) around 2008 had a significant impact on the Australian economy and...
The global financial crisis (GFC) around 2008 had a significant impact on the Australian economy and financial markets. We define the before GFC period as Apr 2000 to July 2007, the GFC period as Aug 2007 to Dec 2009, and the after-GFC period as after Jan 2010. Test the following hypotheses at 5% significance. The Appendix provides the details for testing the difference in means. a. The average AOret is the same before and after the GFC. b. The average...
Is an allegory of what happened in the U.S. economy during the great recession of 2008-2009....
Is an allegory of what happened in the U.S. economy during the great recession of 2008-2009. Therfore, starting from a position of equilibrium in AD-AS, explain what happened to U.S. economy during the great recession of 2008-2009. what did the U.S. goverment and/or the Fedreal Reserve do to get the U.S. out of recession? What eventually happened in 2015-2016 to improve the U.S. economy, GDP, and unemployment, while also decreasing prices? (Explain graphically and writing)
Question 8 . On January 1, 2008, T Systems, a U.S.-based company, purchased a controlling interest...
Question 8 . On January 1, 2008, T Systems, a U.S.-based company, purchased a controlling interest in G Company located in Paris, France Direct exchange rates for Euros are: Dollars per Euro January 1, 2008 $.92 December 31, 2008 .87 Average for 2008 .76 Dividend declaration and payment date .80 Required: Translate the year-end balance sheet and income statement of the foreign subsidiary using the temporal rate method of translation. Euros Translation Income Statement Rate U.S. Dollars Revenue 75,000 Operating...
Course: The U.S. Health Care System While the US healthcare system represents around $3.5 trillion in...
Course: The U.S. Health Care System While the US healthcare system represents around $3.5 trillion in annual spending and is the largest single sector of the overall economy, it also sits inside larger "macro trends" that help define the landscape of jobs. Factors to consider: globalization, the state of the general economy, the rapid pace of innovation, digitalization of medicine and genomic technology, and demographics of the U.S. population (e,g, aging population, and higher healthcare utilization) and changing values and...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT