ipl-logo

Fed Financial Crisis Case Study

2396 Words10 Pages

Introduction
The main reason behind the crisis was the consideration that the prices of houses cannot decline that lead to providing mortgage to subprime customers who were not worthy of the loan. As soon as the customers defaulted, the crisis started. According to E&Y report (2012), the impact was so intense that number of IPO’s and the amount of funds exchanged between the financial institutions declines by as much as 50% of the number before the crisis.
Even though the financial institutions were in need of money, it was not the right time to raise equity or debt since there was scarcity of capital in the market. Most of the financial institutions had huge funds as bad debt and there were no menders at the time. Uncertainty in the market …show more content…

There have been many actions taken for the same. Many central agencies have been formed and regulators created to manage and regulate the CDS. Different regulators have started spreading awareness about the security. Shadow banking is a new concept in the economy.
Fed has also started monitoring the mergers and acquisitions activity to prevent any fraudulent transactions in the economy. Still there are concerns related to the transparency of the Federal Reserve. There is a general belief that the accounts of the Fed are not at all audited and there is no accountability of the agency.
When the government pays as a part of the bailout ($20 billion), the credibility is still doubtful since the recovery is done by the government and not because of the operations. Also the bank has to leave a huge part of ownership to the government. Also the recovery may or may not come even after the bailout. They had a total loss of over $21 billion.
B of A had to face a credibility issue during the time of financial crisis. There were concerns raised on the transparency of the bank and with the increased liability customers started withdrawing money from the bank leaving them stranded. The number of customers for the bank declines by over 40% in a small period of 2 years. This proved the credibility issues for the …show more content…

Based on this belief the banks started giving loans to anyone and everyone applying for a home loan, even to the subprime clients. Mortgage rates were very low and hence everyone got a house in installments. As soon as the interest rate increased, the installments increased for the borrowers. There comes a time when some borrowers were unable to pay the installments for the home. They started defaulting. When default rate increased because of this, banks realized that they have many homes to be auctioned but the buyers are going away from the market because of rise in interest rate. The process started falling and the banks lost huge amount of money in the process. Now since, securitization is a way by which banks had converted their homes loans into liquid assets, they had no funds left to pay for the securitized assets and they

Show More
Related

  • Roaring Twenties Dbq

    742 Words  | 3 Pages

    Due to the surge in sales factories began producing more and more items as the demand to have them sky rocketed in the Roaring Twenties. By 1929, when people began losing their jobs and had no way to pay their mounting credit debt to their bank. People's items began to be repossessed and when the stock market crashed people with loans that were supported by stock began to lose there homes and were forced to take to the street. Now that the stock market had crashed those who hadn't lost everything made a dash to their bank to withdraw their entire saving in an attempt to salvage what assets they had left. However more often than not the banks had no more money to dispense

    Read More

  • Great Depression Dbq

    468 Words  | 2 Pages

    By 1933 people could no longer access their money, because the banks had been closed down. Many individuals began to foreclose on their houses, leaving them homeless without a job. The individuals

    Read More

  • 1929 Dbq

    994 Words  | 4 Pages

    Consequently, this method of purchasing goods became a huge problem because some buyers were unable to repay the lender, putting them in debt and hurting businesses. Money was not being used responsibly during this time period leading to the Stock Market Crash in 1929. There were so many events and foolish actions that people consider as causes of the worst economic downturn. Speculation,

    Read More

  • Great Depression Dbq

    1949 Words  | 8 Pages

    Although, people could not pay these loans back, which caused banks to run out of money and eventually thousands of banks to go bankrupt. Buyers did not demand as many consumer goods after inflation, which is when money is no longer worth its value, because they were not being paid decently. People buying on credit did not have the money on them at the time of their purchases. It was easy for people to buy products and not think about having to pay the prices later. Therefore, people who did not have the money to pay for the goods they bought went into massive amounts of debt.

    Read More

  • Great Depression Dbq

    1347 Words  | 6 Pages

    The Great Depression The Great Depression had multiple causes and forced the United States into many problems in the workforce, schooling, and home life. In the 1920’s, the United States switched to consumer goods which caused an increase in the amount of goods people were buying. Due to people making more purchases, the economy grew stronger. The stock market also began to grow and get stronger because of people, corporations, and banks investing money in stocks.

    Read More

  • Urbanization During The Progressive Era

    1863 Words  | 8 Pages

    After the stock market had crashed and backs had failed people feared putting their trust and money in banks. “FDR went on national radio to deliver the first of his many “fireside chats,”” (Oakes 828). After reopening banks, FDR convinced people that their money would be safe in a reopened bank through his fireside

    Read More

  • Globalism In The Early 20th Century

    1877 Words  | 8 Pages

    The reader so far could gather that globalsim that globalism is a wide spread movement that began it grip on the nation predominately during the mid 20th century, but even to this very day globalism is on the offensive. Most modern day Americans are probably familiar with the Subprime Mortage crisis of ‘08 and for those who are not: in 2008 the U.S. economy’s real estate market suffered from a collapse due to Chase Bank unwarily handing out risky loans that would, realistical, be left unpaid due to people inability to require funds. Being the Federal Reserve’s job to maintain the economy the private bank is ultimately the cause of this economic crises. Before going into an explanation of the crisis one must understand that, through the words of Richard H. Timberlake (2008) “...a particular market instability can be contained only if Federal Reserve policy maintains monetary equilibrium, the principle it abandoned in 1929[The Gold Standard].” Timberlake also mentions in this text that market can, and sometimes, will return to the equilibrium.

    Read More

  • The Effects Of The Stock Market Crash Of 1929 On The United States

    143 Words  | 1 Pages

    The effects of the Stock Market Crash of 1929 on the United States Introduction….. World War I Ends American Banking Relationships with European Nations Black Tuesday attribute to October 29, 1929, when the seller traded nearly 16.4million shares in the New York stock swap. A lot of people know it as the beginning of the great depression. These people that invested in these banks lost their money. It was one of the worst days of the stock market crash.

    Read More

  • Henry Paulson Great Depression Summary

    438 Words  | 2 Pages

    The biggest enemy to the end of the financial crisis and the beginning of an economic recovery is Treasury Secretary Henry Paulson himself. Lets forget for a minute that the decision by Paulson and Bernanke to let Lehman Brothers fail was the precipitating event leading to credit markets freezing up and the first round of financial panic. Since then, the two have been working diligently to correct this collosal mistake. But separating actions from words, we see that words are in fact much more potent. Since the end of September, every time Henry Paulson has opened his month, the Dow has dropped on average 196 points.

    Read More

  • The Big Short Movie Analysis

    1221 Words  | 5 Pages

    This was a high risk high reward bargain that paid off in the end. Banks were making money off their mortgage loans they were selling off in synthetic CDO’s. These debts were actually worthless. When the housing market and Wall Street crashed, many lost their investments. These were meant to be safe investments but because of the actions of the banks, mortgage brokers and many other factors, millions lost everything.

    Read More

  • Rising Income Inequality Essay

    999 Words  | 4 Pages

    The benefits for the economy were obvious; greater consumption, more jobs and the rising profits for banks from the interests of the subprime mortgages given to low-income families. The philosophy of this whole situation was very simple: “The benefits were immediate, whereas paying the inevitable bill could be postponed into the future”. (Till van Treeck, P.422,

    Read More

  • Apush 2003 Dbq

    141 Words  | 1 Pages

    In Addition to maldistribution stood the credit structure of the economy, some farmers were in deep land mortgage debt, so they lowered their crop prices in order to regain credit, and because the farmers were no longer accountable for what they owed banks. Across the nation the banking system found themselves in constant trouble. In America both small and large bankers were concerned for their survival, so they began investing recklessly in stock markets and granting unwise loans. These unconscious decisions would lead a large consequence, such as families losing their life savings and their deposits became uninsured. “ More than 9,000 American banks either went bankrupt or closed their doors to avoid bankruptcy between 1930 and 1933.”Although

    Read More

  • Roaring Twenties Dbq Essay

    810 Words  | 4 Pages

    There goes all of your money*!!! *(If you ever had any). This is basically what happened during the Great Depression and people were lost, for now they had nothing. The Roaring Twenties just ended abruptly and now you have no money and no job. . . surprise!

    Read More

  • Case Study Wells Fargo

    476 Words  | 2 Pages

    Wells Fargo’s “Gutless Leadership” Wells Fargo is one of the largest banks in the United States, with “…more than 8,600 locations [and] 13,000 ATMs” (Wells Fargo Today). Millions of Americans trust them with their finances. However, after a federal investigation, Wells Fargo has admitted to opening up to two million accounts without customers’ permission. While this had financial implications for many customers, this scandal most heavily affected Wells Fargo’s low-level employees.

    Read More

  • How Did Al Capone Contribute To The Great Depression

    831 Words  | 4 Pages

    This is later blamed to be one of the key factor that led to the devastating stock market crash in 1929. In the aftermath of this event, the economy

    Read More

More about Fed Financial Crisis Case Study

Open Document