The Financial Crisis Of The Housing Bubble - 1482 Words

The Financial Crisis that started in 2007 The 2007-08 financial crisis that started in the US is often dubbed as the housing bubble. Although, the burst of the housing bubble is the tipping point of the crisis, the true causes have building up slowly and steadily for almost over a decade. The burst of the housing bubble was merely a reflection of the built up baggage. This crisis is a classic example of how dangerous derivatives can turn out to be if not properly managed. Causes of the crisis and the sequence of events Succinctly, several macroeconomic factors laid the foundation and primed the field for a downfall and rash attitude of borrowers, the sub-prime lending, the greed of bankers and their shadow banking system, complacency of†¦show more content†¦Bingo borrowers – the reckless borrowers Since, loans were offered easily and at cheap cost, borrowers started borrowing recklessly beyond the point of their earnings capacity as there is now no disincentive to default a loan as one can get another loan at relative ease. This subprime lending, increased the demand for housing and thus increased the prices. In effect, sub-prime lending slowly became the cause of the high property prices rather than the effect. The ever greedy Bankers With the promise of building of Chinese wall between investing and commercial banking division, the Glass- Steagall act is repealed and this made it easier for the investment banks to make money out of thin air. I banks that were selling CDOs were constantly nudging the commercial banking division to shun their traditional conservative philosophy with more of a gamble as they can now spin off the risks pretty efficiently . Also, the capital regulations weren’t so tight and allowed the banks to spin the assets off the balance sheet into special purpose vehicles that were subject to weak capital requirement standards and were funded by the raising moneyShow MoreRelatedThe Collapse of the Domino --- Chinese Real Estate1206 Words   |  5 Pagesoutbreak of the U.S. financial crisis in 2008, the whole worlds financial situation is not good, but except one, which is China. However, many people find out that China is walking on the old U.S. economic way, which means China will have economic crisis either. So right now, all the eyes from all the countries are watching at China’s economy, because if Chinese economic collapse, there are no more people buy Japanese animations and European luxuries. And after the economic crisis, China will recoveryRead MoreTheu.s. Housing Market And The U.s. Financial Crisis1448 Words   |  6 Pagesin the U.S. housing market between 2007 and 2009, led to the biggest global financial crisis. The impact of this crisis extended over the world, and the economies of many countries were damaged. Kawai stated that: ‘The ongoing global crisis has had a profound impact on the Asia and Pacific region, particularly on its exports.’ (2009:1) There were a lot of factors which brought about the crisis. Due to limited space, this essay will look at the U.S. housing market and the U.S. financial system, andRead MoreThe Financial Crisis : Deregulation Or Over Regulation?1175 Words   |  5 PagesThe Financial Crisis: Deregulation or Over-regulation? As evidenced by the plethora of explanations concerning it, the 2007-08 financial crisis that originated in the United-States is highly complex. 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