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The Financial Crisis of 2007 - Research Paper Example

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The Financial Crisis of 2007

This happens because nowadays trade barriers are lower than ever before and due to technological advancements, countries are highly interdependent these days than ever before (EconomyWatch). Events Leading to Financial Crisis 2007 The 2007 financial crisis proved to be the worst financial crisis in the history of finance. Nowadays, economies are not surviving in isolation but, actually, they are interlinked and due to this reason a fluctuation in one economy can have significant impact on other countries’ economies as well. Lately, due to this reason some major bankruptcy issues were faced by countries like Italy, Greece and Egypt. In this regard, it becomes essential to get insights about the major triggers behind financial crisis so as to develop some individual backup plans in order to survive in the times of recessions and financial crisis. For each individual, it is imperative to understand the basic criteria of spending and investment during the times of recession. ...
in the beginning of new millennium, the world’s economy faced serious concerns including terrorists’ attacks of 9/11, collapse of dot com bubble followed by recession 2007. Chairman of FED, Alan Greenspan persuaded to lower down the interest rates to just 1%. This phenomenon gave rise to subsequent problems and caused several major economic troubles. In the U.S, advantage of such lowered interest rates was taken by every citizen and mortgage brokers. They started granting loans to millions of buyers who did not have the capability of paying back those loans due to poor credit history and low level of incomes. Lowered interest rates means lowered amount of mortgage payments. These situations created a speculative frenzy of buying houses which continued till 2006. In 2006, Alan Greenspan was replaced by Ben Bernanke, as a Chairman of FED. The situations continued to persist and prices of houses continued to rise in the U.S due to lowered interest rates. Both the former and present chairman of FED, Alan Greenspan and Ben Bernanke negated the alarming sign that this bubble will burst soon giving rise to greater and new economic problems for the U.S economy, as well as the world’s economy. Mortgage brokers took absolute advantage of this condition and allowed mortgages to those buyers who, otherwise wouldn’t be in a position to qualify for home ownership. A large number of these buyers were poor people who did not have the capability of affording high prices of houses due to higher amount of interest rates. They had also not qualified earlier for being granted the loans due to poor credit history and low income. Approximately for 60% of subprime loan, there was no income authentication (Slavin). This situation resulted in loss of confidence of investors ...Show more

Summary

Date: Prepare a short paper on the mortgage industry and show how it is related to the financial crisis of 2007 and its subsequence ramifications up to the current economic situation. The Subprime Mortgage Mess, the Housing Bubble and the Financial Crisis of 2007 Financial crisis is generally described as an abrupt decline in the worth of financial assets and their respective financial institutions…
Author : kundekeely
The Financial Crisis of 2007 essay example
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