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Subprime Meltdown - Essay Example

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Author : vallieabbott

Summary

The article goes at length to discuss the financial credit crunch of 2007, highlighting both the causes and effects of the financial meltdown and its implications for the accounting bodies. Despite the presence of rules and regulations and accounting standards, the financial markets collapsed shattering investor confidence and bringing down with them the confidence and trust in the accounting procedures and laws of major regulatory bodies…

Extract of sample
Subprime Meltdown

The article begins by discussing the case of New Century and revealing that it represented one of the biggest accounting failures at that time. At one end was the view that the accounting procedures used by the company were faulty and there were major red flags that the company did not watch out for. However, at the other end was the view that the failure of New Century was an inevitable outcome of the overall failure of the U. S Housing Industry and that the company was bound to come down in the midst of a failing market. However, the report does point out certain red flags that were not taken into account by the company and accounted for its failure. The major issue, as highlighted, was that the company did not undertake rigorous research effort into exploring the background of potential borrowers; that it had no benchmark for assessing the quality of its lending. One of the most obvious flaws was to rule out the income level of the borrower before lending him/her the loan; thus, loans were lent despite insufficient collateral. ...
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