hy Did Mortgage Lenders Lend to Subprime Customers?

The growth of the subprime market owes itself to an influx of international and hedge fund investors who were increasingly separated from the final mortgagees. Banks and savings and loan institutions generally knew their borrowers, because they lived and worked in the same communities. hen banks and S&L's held the mortgages, they were making a bet on the creditworthiness of people they knew well. This started to break down in the late 1980's, when the federal government stepped in to the "S&L Crisis" and created the RFC -- Reconstruction Finance Corporation -- to buy assets and close down S&L's which had made imprudent loans.

Loan securitization was thus slowed down by the S&L crisis, but was built slowly over the 1990's as money center investment banks developed ways to evaluate and package the mortgages into understandable assets which could be judged as being of…...

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Works Cited

AP. (2007, September 26). Credit rating agencies defend track record. AP, p. n.p.

Collins, M.C. (1997). Thrift viability and traditional mortgage lending: A Simultaneous equations analysis of the risk-return trade-off. Journal of Real Estate Research, n.p.

Economist. (2003, December 30). Cracks in the Brickwork. Economist, p. n.p.

Economist. (2005, June' 16). The Global Housing Boom. Economist, p. n.p.

Subprime Mortgage Crisis -- 4 Questions
hat is "leverage"? How does leverage magnify a bank's profit and losses?

The term leverage refers to the use of someone else's money to create financial gain. In the mortgage industry, homeowners typically put down a small amount of money on a home, and borrow the rest in the form of a mortgage. This use of borrowed money for a large purchase is referred to as leverage. hile the homeowner has only put down a small amount of money and has borrowed a fixed amount from a bank, he may gain money in the form of home equity as a result of having used leverage to buy his home, because in the meantime, his home has gone up in value. hen a bank uses leverage, it can either gain money as its leveraged assets go up in value, or lose money as they go down in…...

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Work Cited

Bernake, Ben. "Four Questions about the Financial Crisis." Federal Reserve. April 14, 2009.  http://www.federalreserve.gov/newsevents/speech/bernanke20090414a.htm 

Conerly, Bill. "Did Lack of Regulation Create the Subprime Mortgage Crisis?" Seeking Alpha. September 28, 2008.  http://seekingalpha.com/article/97636-did-lack-of-regulation-create-the-subprime-mortgage-crisis 

D'Hulster, Katia. "The Leverage Ratio." The World Bank. December, 2009. Web.  http://www.worldbank.org/financialcrisis/pdf/levrage-ratio-web.pdf 

Jaffe, Dwight; and Perlow, Mark. "Investment bank regulation after the Bear rescue." Central Banking Journal. 18 (May 2008). Web.  http://faculty.haas.berkeley.edu/jaffee/Papers/104CB_JaffeePerlow.pdf

Subprime Mortgage Crisis
A major issue for today's economy in the U.S. is the subprime mortgage crisis. The mortgage crisis has sent the U.S. economy into a recession with greater impact than the Great Depression of the 1920s. One will discover some important terms that will allow the reader to better understand this topic. Additionally, this paper will examine some background information and events that led to the housing market crash and examine the causes and impact on the U.S. economy and current housing market. Also reviewed will be the role of Fanny May and Freddie Mack. This work will additionally make recommendations of what it is that might possibly be done that would serve to improve the current situation.

Sub-Prime Mortgage and Housing Market Crisis

Introduction

Many factors contributed to the subprime mortgage crisis, which began approximately ten years ago when the expansion of the housing market was increased by easily accessible loans.…...

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Bibliography

Jaffee, Dwight (2008) The U.S. Subprime Mortgage Crisis: Issues Raised and Lessons Learned. Commission on Growth and Development. Working Paper No. 28. Retrieved from: http://www.growthcommission.org/storage/cgdev/documents/gcwp028web.pdf

Amadeo, Kimberly (nd) Understanding the Subprime Mortgage Crisis. About.com. U.S. Economy. Retrieved from:  http://useconomy.about.com/od/economicindicators/tp/Subprime-Mortgage-Primer.htm 

Bianco, Katalina (2008) The Subprime-Lending Crisis: Causes and Effects of the Mortgage Meltdown. CCH 2008. Retrieved from:  http://business.cch.com/bankingfinance/focus/news/Subprime_WP_rev.pdf 

Amadeo, Kimberly (nd) Fannie Mae, Freddie Mac and the Subprime Mortgage Crisis. About.com U.S. Economy. Retrieved from:  http://useconomy.about.com/od/grossdomesticproduct/tp/Subprime_Mortgages_FNMA.htm

What caused the subprime mortgage crisis and what was the result of the Treasury's and Federal Reserve's response to that crisis? Most people are familiar with the overall story of events leading up to 2008. They may have seen the film The Big Short, which helped the public to learn about collateralized debt obligations (CDOs) and credit default swaps (CDSs). However, there is a lot more to the story than that one movie could tell. This paper will explain. The reality is that the subprime mortgage crisis was caused by a complex variety of systemic factors, and the response—rather than address the systemic issues—ensured that a similar crisis would occur again down the road; and that crisis has been seen in 2020. Overview of Causes
The Financial Accounting Standards Board (FASB) was a big reason the crisis occurred in the first place. What did the FASB do? It had the opportunity to…...

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Bibliography

Bernhard, S., & Ebner, T. (2017). Cross-border spillover effects of unconventional monetary policies on Swiss asset prices. Journal of International Money and Finance, 75, 109-127.

Flegm, E. H. (2008). The Need for Reliability in Accounting. Why historical cost is more reliable than fair value. Journal of Accountancy, 205(5), 34.

Healy, P. M., Palepu, K., & Serafeim, G. (2009). Subprime Crisis and Fair-Value Accounting. HBS Case, (109-031).

Laux, C., & Leuz, C. (2010). Did fair-value accounting contribute to the financial crisis?. Journal of economic perspectives, 24(1), 93-118.

Lewis, M. (2010). The Big Short. NY: W. W. Norton.

Posen, R. (2009). Is It Fair to Blame Fair Value Accounting for the Financial Crisis? Retrieved from

Posner, E. A. (2015). How Do Bank Regulators Determine Capital-Adequacy Requirements?. The University of Chicago Law Review, 1853-1895.

Young, M. R., (2008). Both sides make good points. Journal of Accountancy, 205(5), 34.https://hbr.org/2009/11/is-it-fair-to-blame-fair-value-accounting-for-the-financial-crisis

Enter the Fed, Yet Again

Unable to understand that rapid interest rate moves create shocks to the market, resulting in distortions in supply and demand, the Fed dealt with the bursting of the housing bubble by lowering interest rates rapidly, this time to next to nothing. This response was intended to stimulate the economy. In 2001, the rate decreases were also intended to stimulate the economy, but they mainly stimulated one sector. The Fed's goal with the most recent round of drastic rate cuts is to stimulate lending. The rate cuts came when the scope of the crisis was just becoming apparent. The rapid reaction this time was met with skepticism from markets. here before there was at least one strong sector in which to invest excess capital, this time there were none. orse, the mistakes of the past few years had put banks in a position where they could not…...

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Works Cited:

Knowledge @ Wharton: Inside the Subprime Crisis website, various pages. (2008). Wharton School of Business. Retrieved December 2, 2009 from  http://knowledge.wharton.upenn.edu/special_sections/subprime/ 

Bureau of Economic Analysis. (2009). Gross domestic product: Third quarter 2009. BEA. Retrieved December 2, 2009 from  http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm 

Shiller, R. (2005). Origin of the Term. Irrational Exuberance. Retrieved December 2, 2009 from  http://www.irrationalexuberance.com/definition.htm 

Boeri, T. & Guiso, L. (2007). Subprime crisis: Greenspan's legacy. Vox EU. Retrieved December 2, 2009 from  http://www.voxeu.org/index.php?q=node/488

The term "adjustable-rate mortgage" describes any mortgage with an interest rate and payments that adjust according to some formula agreed upon by the borrower and lender. ARMs have been generally available to borrowers for about three decades on prime mortgages, but variants have been common to subprime mortgages over the past 10 years. The traditional ARM linked the mortgage's interest rate to the LIOR plus several percentage points." (Utt,2008)
Alt -- a Mortgages. Sometimes referred to as a "low-doc" mortgage, an Alt -- a mortgage is structured like the other mortgages described in this section but is made available only to prime borrowers or those with FICO scores above 660. However, these prime borrowers were required to offer only limited documentation on their qualifications, so many may not have been as "prime" as they represented themselves to be, as subsequent default rates indicate." (Utt, 2008)

Extremely Low- or No-Down-Payment Mortgages. As…...

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Bibliography

Utt, Ronald D. (2008) the Subprime Mortgage Market Collapse: A Primer on the Causes and Possible Solutions. Backgrounder 2127 the Heritage Foundation. Online available at  http://www.heritage.org/research/economy/bg2127.cfm 

The Subprime Mortgage Market (2008) National and Twelfth District Developments. Federal Reserve Bank of San Francisco. Online available at  http://www.frbsf.org/publications/federalreserve/annual/2007/subprime.pdf 

Chomsisengphet, S. And Pennington-Cross, a. (2006) the Evolution of the Subprime Mortgage Market. Federal Reserve Bank of St. Louis (2001) Online available at>  http://research.stlouisfed.org/publications/review/06/01/ChomPennCross.pdf

Another significant factor that affected the financial crisis of 2008 was role that Wall Street played in worsening the impact of the financial disaster that was to come. Specifically, a number of prominent Wall Street companies effectively "bought in" to the housing shortage by investing in securities that are financially supported by loans of a dubious nature. A recent report compiled by the Financial Crisis Inquiry Commission alludes to the fact that such investors were well aware of the substantial risk that these investments represented, yet pursued them anyway due to avaricious tendencies (Chan, 2011).

The involvement of banks in the financial crisis goes well beyond issuing loans that were of a suspect nature to people who required subprime loans. To that extent, this degree of culpability on the part of banks can actually be traced to the Securities and Exchange Commission, another federal government entity, that was decidedly lax about…...

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Bibliography

Chan, S. (2011). "Financial Crisis Was Avoidable, Inquiry Finds." The New York Times.  http://www.nytimes.com/2011/01/26/business/economy/26inquiry.html 

Davis, J.F. (2008). "The Cause of the 2008 Financial Crisis." Aim.org.  http://www.aim.org/guest-column/the-cause-of-the-2008-financial-crisis/ 

Shah, a. (2010). "Global Financial Crisis." Globalissues.org.  http://www.globalissues.org/article/768/global-financial-crisis

real or hypothetical situation?
The context of the report is based on the real world implications of the financial crisis on the banking industry and society as a whole. The report details the need for reform within the sector overall. Particular emphasis is placed on Bank of America, as it was a large component of the subprime-lending crisis.

Why did you choose this topic, and does it relate to you in any way?

I chose this topic because it has impacted both society and the world at large. Nearly $1 trillion in asset values were erased in 1 year due to the financial crisis. People were foreclosed on and subsequently lost their homes. Taxpayers were forced to pay large sums of money to bailout a corrupt and greedy system. This topic not only resonates with me personally, but with the entire developed world. We nearly were on the brink of financial Armageddon.…...

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References:

1. Edward Gramlich (2004). "Subprime Mortgage Lending: Benefits, Costs, and Challenges." Board of Governors of the Federal Reserve System.

2. Eichengreen and Hausmann (2005), Other People's Money: Debt Denomination and Financial Instability in Emerging Market Economies. Pg 6-15

3. Peter Coy (2007). "Why Subprime Lenders Are In Trouble." Business Week

4. Pitt, Harvey L. (2005). "Conflict of Interest Lessons From Financial Services." Compliance Week.pg 2-5

nd we must take into consideration what would happen if, somewhere down the line, we encountered the very real possibility of changed financial circumstances.
The financial knots we're tying ourselves into now, as we scramble to purchase homes and wind up owning less of them, can have serious long-term ramifications. Because today's overall tighter finances often necessitate putting off major purchases, many adults don't buy their first home until they're well into their thirties or even forties.

s a result, those thirty-year mortgage payments follow us right into retirement, hanging around even as rising health care and tuition expenses for college-aged children begin to spike. s a result, we discover too late that the asset we gambled everything to acquire because it was going to see us through retirement is instead pushing that retirement further and further away. lready, an increasing number of seniors are borrowing against their homes, accumulating more…...

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Adam Tanner, San Francisco Suburb Vallejo Files for Bankruptcy, REUTERS, May 23, 2008;

Fishbein & Woodall.

Michael M. Phillips, to Help Broke Homeowners, He's Taking the Law into His Own Hands, WALL ST. J., June 6, 2008, at A1.

shadow banking system, its role in the subprime mortgage crisis, and failures of regulation within the shadow banking system. The term "shadow banking system" was coined by PIMCO's Paul McCulley in 2007 (Spanos, 2012) and refers to a banking system that includes financial intermediaries that are involved in creating credit across the global financial system, whose functions are not subject to regulatory oversight (Investopedia, 2012). The question has been debated as to whether shadow banking meets the definition of true banking. Given that the two systems perform similar functions, including credit intermediation and maturity transformation, the two should be considered parallel systems (Noeth and Sengupta, 2011).
The term shadow banking is used to describe any provision of credit taking place outside of the traditional deposit-funded lending system. This definition includes institutions that range from pawnbrokers and consumer finance companies to securities dealers as well as firms that issue corporate bonds.…...

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Reference List

Armstrong, R., 2010. Q+A -- Regulating the shadow banking system. Fox Business. [online] Available at: [Accessed 20 April 2012].

Beckworth, D., 2010. "Deposit insurance" for the shadow banking system. [online] Available at: [Accessed 20 April 2012].

Drum, K., 2012. The shadow banking system speaks: It's not time for austerity yet. MotherJones. [online] Available at: [Accessed 20 April 2012].

Hsu, J. And Moroz, M., 2009. Shadow banks and the financial crisis of 2007-2008. Research Affiliates LLC. [online] Available at: [Accessed 20 April 2012].

Banks
Improper Foreclosure and Mortgage Practices in the Banking Industry

Efficient Market Hypothesis

Real Estate Bubble

Sub-Prime Mortgages

Overview on the Value of Banks

Arguments against Financial Intermediaries

Ethical Violations

This research paper aims to shed light into what led to the global financial collapse that, for the most part, began in the U.S. housing market and the ethical implications that followed. Many researchers agree that the primary drivers that led to the real estate crisis was the lifting of the Glass Steagall Act, the fostering of sub-prime lending, and the creation of derivatives and credit default swaps which were used as complex financial instruments. This offered the big five banks an entire new range of operating opportunities. All of these financial tools were justified by the efficient market hypothesis and as a consequence provide evidence for the lack of a truly efficient market. As a result of the financial failures, many banks were either bought, went bankrupt,…...

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Works Cited

Ball, R. "The Global Financial Crisis and the Efficient Market Hypothesis." CFA Digest (2010): 44-45. Web.

Bauman, S., M. Conover and R. Miller. "Growth vs. value and large-cap vs. small-cap stocks in international markets." Financial Analysis Journal 54.2 (1998): 75-89.

Beers, B. "End the Fed, Save the Dollar: Ron Paul." 7 September 2009. CNBC. Web. 19 March 2012.

Chen, B. And F. Kaboub. The Repeal of the Glass-Steagall Act and the Subprime Mortgage Crisis. 8 February 2012. Web. 19 March 2012.

The article that was written by Conley (2011) discusses the impact that collateralized debt obligations (CDO's) would have upon the subprime loans. These were created in 1987, by the Wall Street firm Drexel urnham. In this product, the investment bankers would take a number of different articles and combine them together as one investment. The various assets that were used included: junk bonds, mortgages and other high yielding investments from the debt. The idea with these different products is that the investment bank could offer customers a stated return on their investment. The way it worked is the brokerage firm would distribute each investor, the stated amount of returns that they would make off of the tranche (the CDO investment). This was derived using a complex mathematical formula that would divide the total amount of interest that was received, from the various high yielding products that were inside the CDO.…...

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Bibliography

Case Study, 2011, Investopedia. Available from: [14 February 2011]

Citi Merger a Mistake, 2008, Huffington Post. Available from: [14 February 2011].

Deregulation Redux, 2011, FCIC. Available from: {14 February 2011].

Derivatives, 2011, Financial Dictionary. Available from: [12 February 2011].

2007 Economic Crisis on American Car market
Effect of the 2008 global economic crisis on automotive industries

Crisis in the United States

Crisis in Canada

Crisis in ussia

Crisis in European markets

Crisis in Asian markets

Effects by other related crisis events

In this paper, we will review the effects of 2008 global automotive crisis. Our main focus will be on the American car manufacturers and the negative impact they suffered due to the crisis. We will also have a look at how this crisis had affected car manufacturers in other major markets around the world notably Europe, Canada and the prominent Asian markets such as China and India. Finally, we will look at some of the other factors which were important to this event namely the energy crisis since the cost of fuel is directly related to the car industry.

Introduction

The automobile industry is a very important part of the global economic structure, in many of the…...

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References

Lee, C. (2003). Financial Liberalization and Economic Crisis in Asia. New York: Routledge.

Pempel, T.J. (1999). The Politics of Asian Economic Crisis. New York: Cornell University Press.

Arestis, P. (2001). What Global Economic Crisis? New York: Palgrave.

Liou, K.T. (2002). Managing Economic Development in Asia. Westport, CT: Praeger.

Conclusions -- Was TAP Necessary -- A five member Congressional committee echoed a number of criticisms regarding TAP that many consumers, academics, and fiscal analysts were considering. What exactly was the Treasury's strategy with the $700 billion dollars for the supposed bail out? How can Treasury explain the significant gaps in their ability to find hundreds of billions of taxpayer money? In a nutshell, it appears that the departments that control the money given by the Congress (from the American people) have no ability to ensure that the bailed out banks will do what was needed and lend money; have no real standards of measuring success of failure of the program; and for ignoring pointed and specific questions from Congress about their performance (M. Crittenden).

The fact that many of the institutions bailed out with TAP funds, funds from the American taxpayer, did not distribute these funds back into the economy…...

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REFERENCES and WORKS CONSULTED

"2007 Public Company Bankruptcies Surpassed, According to BankruptcyData.com." 17 September 2008. AllBusiness.Com. 11 April 2010  http://www.allbusiness.com/company-activities-management/financial-performance/11564300-1.html 

Andrews, E., et.al. "Fed's $85 Billion Loan Rescues Insurer." The New York Times 16 September 2008:  http://www.nytimes.com/2008/09/17/business/17insure.html?_r=1&hp .

Bardeesy, Karim. "Bailout Baloney." 2 October 2008. The Big Money from Slate. 11 April 2010  http://www.thebigmoney.com/articles/juicy-bits/2008/10/02/bailout-baloney 

Bucznski, Richard. "Economic Crisis: When Will It End?" 2010. IBIS World. 9 April 2010  http://www.ibisworld.com/recession2009/

Many subprime mortgages were made with little documentation of income or ability to repay, or other elements that typically safeguard loans of all types and mortgages especially. There have even been cases of widespread fraud, where documents were falsified in order to approve loans. The reason many lenders were so eager to make these bad loans is that they weren't ultimately going to be responsible for them -- the loans were bundled into groups and sold as "mortgage backed securities," so instead of dealing with many individual loans worth an average of a few hundred thousand dollars, banks and other institutions were dealing with bundled groups of these bad loans worth millions of dollars apiece. Companies like AIG made money in the short-term by providing insurance policies for these mortgage backed securities, as well. Eventually, however, people with loans they couldn't really afford began to default, either because they simply…...