The Causes of the Financial Crisis in 2008 Essay

The Causes of the Financial Crisis in 2008 - Essay Example It played a striking role in the failure of key businesses. It also contributed to the decrease in consumer wealth estimated to be in trillions of US dollars and a downturn in economic activities that led to global recession of 2008 – 2012 and also contributed to the European sovereign – debt crisis. It led to the increase of the TED spread that reflected an increase in perceived credit risk. The TED spread is the difference between rates of interest on interbank loans and on short – term U.S government debt. The spread of TED increase is shown in the graph below: The spread (in red) increases significantly during the crisis. The spread size is usually denominated in basis points e.g. if the bill rate (T - bill) is 5.1% and ED trades at 5.5% then the TED spread is 40 basis points. The TED spread has fluctuated over time but generally has maintained the range of within 10 and 50 basis points except during the financial crisis. In general the financial crisis cause d a very big damage to the world economy and many researchers have carried out studies to explain the causes of this crisis. We try to look into some of the causes below. Imprudent mortgage lending is considered a cause to the crisis as compared to a backdrop of abundance in credit, reduced interest rates, and over the roof prices for houses, lending standard became hassle free enabling many people to engage in the purchase of houses they couldn’t afford. ... Competitive pressures contributed to the increase in the amount of subprime lending during the years preceding the crisis. Source: U.S census bureau, Harvard University. State of the nation’s housing report 2008 The graph shows the dramatic expansion of subprime lending in the U.S between 2004 and 2006. Another cause was the housing bubble where the Federal Reserve allowed housing prices to sour to an all-time high that was unsustainable. Once the bubble burst as it was bound to, it triggered the crisis. The Federal Reserve maintained interest rates artificially low, per month payments to mortgage were low too and housing prices went up. Home owners took equity loans to pay their initial mortgages and credit card debts until the home prices peaked and the house of cards started to crumble. Mortgage debts would not be increased to pay previous debts. Lack of transparency and accountability in mortgage financing also did contribute to the 2008 financial crisis. Many participants in the housing finance sector contributed to the crisis through the creation of bad mortgages and selling of bad securities with confidence that they won’t be held accountable. Lenders would sell exotic mortgages to home owners without considering the repercussions in case the mortgages failed. Similarly, a trader would sell to investors’ securities that are toxic with fear of personal responsibility in case the contracts failed. The system collapsed through the maximization of personal gains and passing of the problem down the chain from brokers, to realtors, to individuals in rating agencies, and to other market participants. The great promise of managing risk by the ‘originate – to – distribute’ model of finance failed with

American Indian Essay Example | Topics and Well Written Essays - 500 words - 2

American Indian - Essay Example on in the modern world of the Americans, American Indians or the Native Americans have a number of conflicting policies toward the American Government who makes the law. The American government have policies that separate the American Indians from their lands while they are making policies to recognize their sovereign rights to their territories (Brookeman, 1990). Let us tackle how certain government policies which have been promulgated by different presidents of the United States have influenced over the overlapping of Native American policies and how being their presidency affected the rights of the natives to recognize their rights to live in the present society. President Lyndon Johnson on August 6, 1965 after years of fighting for Civil Rights signed into law the Voting Rights Act (VRA) which was considered by many as the most significant civil rights law ever enacted. This law gives the minority groups for equal voting protection and power and it removes other laws that prohibit African Americans, Latino-Americans, Asian-Americans and Native Americans to vote. This defines broad political equality and their political participation to determine their choice for political leaders. In 1970, President Richard Nixon has declared a national policy and self-determination for Indian tribes. This policy was promulgated into Executive Order 13336 which states its adherence to a government-to-government support and relationship for tribal sovereignty and self-reliance. This has resulted with the ratification Executive Order 13175 in 2000 which relates to the Consultation and Coordination with Indian Tribal Governments (USDJ, 2007). Jimmy Carter the 39th US President signed into law S.J. Resolution 102 which is the American Indian Religious Freedom Act of 1978. This law has empowered the political rights of the American Indian, Eskimo, Aleut and Native Hawaiian people to protect and preserve their inherent rights to exercise their traditional religions under the