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Role played by "securitization" and "structured finance products" in the recent banking and financial crisis affecting developed
Finance & Accounting
Pages 8 (2008 words)
Title: Role of "securitization" and "structured finance products" in the recent banking and financial crisis affecting developed economies Submit to: Submit by: Table of content Page 1. Introduction 3 2. What caused the crisis? 4 3. Mortgage loan crisis at US lending markets 5 4.
Financial institutions worldwide have been affected by the adverse market environment created by the US sub prime fiasco. Trouble began when the financial companies started relying too much on the innovation in the blind faith that it will yield returns. As it is common knowledge that banking industry has suffered the most due to the current meltdown, the symptoms of the malaise started emerging in the US mortgage business first. The cracks appeared in the banking system. Housing prices, according to Financial World (2008) started falling in the year 2005. Initial symptom appeared in the market for sub prime residential mortgage-supported securities as investment demand shrank in 2006. In February 2007, auctions to finalise rates on ARS instruments failed because of decreasing investor demand. Cracks in financial market became wide open in June 2007 with the failure to meet the lenders’ call on Collateralised Debt Obligations (CDOs) by two Bear Stearns hedge funds for subprime loans. Let’s try to comprehend what happened. The recessionary trends as per BBC News (2007) that the banking industry is bearing appeared with the sub prime lending to home borrowers. The mortgage brokers were inspired to sell loans in the sub prime sector as hectic activity was taking place in the economy. ...
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