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The Global Financial Crisis - Online Term Paper

The Global Financial Crisis

The Global Financial Crisis

The current financial crisis is known to be the worst since the Great Depression of the 1930’s. It is accredited for the failure of many businesses, decline in consumer wealth and an overall decline in economic activity. It doesn’t end there. This crisis soon spread its wings, and became a global issue. The world as a whole is currently suffering from this gigantic economic collapse; which has its roots buried in the sub-prime mortgage issue.
Following the technology bubble and the events of September 11th, 2001, the Federal Reserve attempted to aid a struggling economy by lowering interest rates to an unusually low level. As a result, a housing market ...

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each year. Like most asset price bubbles, it was expected for the housing price to continually increase despite the bubble reaching its peak. The rapid rise of lending to subprime borrowers helped inflate the housing price bubble. The continuous rise in house prices along with new financial innovations created an attraction for subprime borrowers. Lenders created adjustable rate mortgages, no down payment and postponed interests under the pretense that home prices would continue to rise at the current rate. Securitizing mortgages (the pooling of mortgages into packages and then selling securities back by those packages to investors) was another innovation of the mortgage design that seemed to have backfired as well.
Along with the subprime mortgage crises, agency problems had risen which only added to this catastrophe. Mortgage brokers did not make a strong enough effort to evaluate whether or not the borrowers were fit to receive loans. This caused risk loving investors to ...

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The Global Financial Crisis. (2011, April 19). Retrieved November 22, 2024, from http://www.essayworld.com/essays/The-Global-Financial-Crisis/98208

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PAPER DETAILS

Added: 4/19/2011 03:17:16 PM
Submitted By: poohbearqt
Category: Economics
Type: Premium Paper
Words: 838
Pages: 4

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