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					                                                                                   Assignment#1

Financial crisis from 2007 to the present:

The financial crisis from 2007 to the present is considered by many economists to be the
worst financial crisis since the Great Depression of the 1930s.It was triggered by a liquidity
shortfall in the United States banking system, and has resulted in the collapse of large financial
institutions, the bailout of banks by national governments, and downturns in stock markets
around the world. In many areas, the housing market has also suffered, resulting in
numerous evictions, foreclosures and prolonged vacancies. It contributed to the failure of key
businesses, declines in consumer wealth estimated in the trillions of U.S. dollars, substantial
financial commitments incurred by governments, and a significant decline in economic activity.

Although there have been aftershocks, the financial crisis "officially" ended in 2008. Many
causes for the financial crisis have been suggested, with varying weight assigned by
experts. Both market-based and regulatory solutions have been implemented or are under
consideration,

Over view:
The collapse of the U.S. housing bubble, which peaked in 2006, caused the values
of securities tied to U.S. real estate pricing to plummet, damaging financial institutions
globally. Questions regarding bank solvency, declines in credit availability and damaged investor
confidence had an impact on global stock markets, where securities suffered large losses during
late 2008 and early 2009. Economies worldwide slowed during this period, as credit tightened
and international trade declined. Critics argued that credit rating agencies and investors failed
accurately to price the risk involved with mortgage-related financial products, and that
governments did not adjust their regulatory practices to address 21st-century financial markets.
Governments and central banks responded with unprecedented fiscal stimulus, monetary
policy expansion and institutional bailouts.

Major Dimensions:
1. Subprime mortgage crisis:

The US subprime mortgage crisis was one of the first indicators of the 2007–2010 financial
crisis, characterized by a rise in subprime mortgage delinquencies and foreclosures, and the
resulting decline of securities backing said mortgages.

Approximately 80% of U.S. mortgages issued to subprime borrowers were adjustable-rate
mortgages. After U.S. house sales prices peaked in mid-2006 and began their steep decline
thereafter, refinancing became more difficult. As adjustable-rate mortgages began to reset at
higher interest rates, mortgage delinquencies soared. Securities backed with mortgages,
including subprime mortgages, widely held by financial firms, lost most of their value. Global
investors also drastically reduced purchases of mortgage-backed debt and other securities as part
of a decline in the capacity and willingness of the private financial system to support lending.
Concerns about the soundness of U.S. credit and financial markets led to tightening credit around
the world and slowing economic growth in the U.S. and Europe.

2. Subprime crisis impact timeline:

The subprime crisis impact timeline lists dates relevant to the creation of a United States housing
bubble and the 2005 housing bubble burst (or market correction) and the subprime mortgage
crisis which developed during 2007 and 2008. It includes United States enactment of government
laws and regulations, as well as public and private actions which affected the housing industry
and related banking and investment activity. It also notes details of important incidents in the
United States, such as bankruptcies and takeovers, and information and statistics about relevant
trends. For more information on reverberations of this crisis throughout the global financial
system see financial crisis of 2007–2010 or Global financial crisis of September–October 2008.



3. United States housing bubble:

The United States housing bubble is an economic bubble affecting many parts of the United
States housing market, including areas of Arizona, Arkansas, California, Colorado, Connecticut,

Florida, Georgia, Hawaii, Idaho, Illinois, Indiana,Maryland, Massachusetts, Michigan, Nevada,

 New Hampshire, New Jersey, Ohio, Oregon, Rhode Island, Tennessee, Utah and Virginia.
Housing prices peaked in early 2005, started to decline in 2006 and 2007, and may not yet have
hit bottom as of 2010. On December 30, 2008 the Case-Shiller home price index reported its
largest price drop in its history. Increased foreclosure rates in 2006–2007 among U.S.
homeownersled to a crisis in August 2008 for the subprime, Alt-A,collateralized (CDO),

 mortgage, credit, hedge fund, and foreign bank markets. In October 2007, the U.S. Secretary of
the Treasury called the bursting housing bubble “the most significant risk to our economy.”

Any collapse of the U.S. Housing Bubble has a direct impact not only on home valuations, but
the nation’s mortgage markets, home builders, real estate, home supply retail outlets, Wall
Street hedge funds held by large institutional investors, and foreign banks, increasing the risk of
a nationwide recession.Concerns about the impact of the collapsing housing and credit markets
on the larger U.S. economy caused President George W. Bush and the Chairman of the Federal
Reserve Ben Bernanke to announce a limited bailout of the U.S. housing market for homeowners
who were unable to pay their mortgage debts.

In 2008 alone, the United States government allocated over $900 billion to special loans and
rescues related to the US housing bubble, with over half going to the quasi-government agencies
of Fannie Mae, Freddie Mac, and the Federal Housing Administration. On December 24, 2009
the Treasury Department made an unprecedented announcement that it would be providing
Fannie Mae and Freddie Mac unlimited financial support for the next three years despite
acknowledging losses in excess of $400 billion so far.Treasury has been criticized for
encroaching on spending powers that are enumerated for Congress alone by the US constitution,
and for violating limits imposed by the Housing and Economic Recovery Act of 2008.

4. 2000s Energy crisis:
From the mid-1980s to September 2003, the inflation-adjusted price of a barrel ofcrude
oil on NYMEX was generally under $25/barrel. During 2003, the price rose above $30, reached
$60 by August 11, 2005, and peaked at $147.30 in July 2008. Commentators attributed these
price increases to many factors, including reports from the United States Department of
Energy and others showing a decline inpetroleum reserves, worries over peak oil, Middle East
tension, and oil price speculation.

For a time, geo-political events and natural disasters indirectly related to the global oil market
had strong short-term effects on oil prices, such as North Korean missile tests,the 2006 conflict
between Israel and Lebanon, worries over Iranian nuclear plans in 2006, Hurricane Katrina, and
various other factors. By 2008, such pressures appeared to have an insignificant impact on oil
prices given the onset of the global recession. The recession caused demand for energy to shrink
in late 2008, with oil prices falling from the July 2008 high of $147 to a December 2008 low of
$32. Oil prices stabilized by October 2009 and established a trading range between $60 and $80.



5. Late-2000s recession:
The late-2000s recession, more often called the Great Recession or simply the Recession, was a
severe global economic recession that began in the United States in December 2007 and ended in
June 2009, according to the U.S. National Bureau of Economic Research (NBER).However,
heightened unemploymentand economic hardship remain in many countries. The Great
Recession has affected the entire world economy, with higher detriment in some countries than
others. It was a global recession characterized by various systemic imbalances and was sparked
by the outbreak of the 2007 to present Financial crisis. In July 2009, it was announced that a
growing number of economists believed that the recession may have ended. However, in the
United States, the requisite two consecutive quarters of growth in the GDP did not actually occur
until the end of 2009.



6. Automotive industry crisis of 2008–2010:

 The automotive industry crisis of 2008–2010 was a part of a global financial downturn. The
crisis affected European and Asian automobile manufacturers, but it was primarily felt in the
American automobile manufacturing industry. The downturn also affected Canada by virtue of
the Automotive.

The automotive industry was weakened by a substantial increase in the prices of automotive
fuels linked to the 2003-2008 energy crisis which discouraged purchases of sport utility
vehicles (SUVs) and pickup trucks which have low fuel economy. The popularity and relatively
high profit margins of these vehicles had encouraged the American “Big Three”
automakers,General Motors, Ford, and Chrysler to make them their primary focus. With fewer
fuel-efficient models to offer to consumers, sales began to slide. By 2008, the situation had
turned critical as the credit crunch placed pressure on the prices of raw materials.

Car companies from Asia, Europe, North America, and elsewhere have implemented creative
marketing strategies to entice reluctant consumers as most experienced double-digit percentage
declines in sales. Major manufacturers, including the Big Three and Toyota offered substantial
discounts across their lineups. The Big Three faced criticism for their lineups, which were seen
to be irresponsible in light of rising fuel prices. North American consumers turned to higher-
quality and more fuel-efficient product of Japanese and European automakers. However, many
of the vehicles perceived to be foreign were actually “transplants,” foreign cars manufactured or
assembled in the United States, at lower cost than true imports.



7. Financial Crisis Inquiry Commission (FCIC):

The Financial Crisis Inquiry Commission (FCIC) is a ten-member commission appointed by
the United States government with the goal of investigating the causes of the financial crisis of
2007–2010. The Commission has been nicknamed the Angelides Commission after the
chairman, Phil Angelides. The Commission has been compared to the Pecora Commission,
which investigated the causes of the Great Depression in the 1930s, and has been nicknamed
the New Pecora Commission. Analogies have also been made to the 9/11 Commission, which
examined the September 11 terrorist attacks. The Commission does have the ability
to subpoena documents and witnesses for testimony, a power that the Pecora Commission had
but the 9/11 Commission did not. The first public hearing of the Commission was held on
January 13, 2010, with the presentation of testimony from various banking officials. Hearings
will continue during 2010 with “hundreds” of other persons in business, academia, and
government testifying.

The Commission reported its findings in January 2011. It concluded that “the crisis was
avoidable and was caused by: Widespread failures in financial regulation, including the Federal
Reserve’s failure to stem the tide of toxic mortgages; Dramatic breakdowns in corporate
governance including too many financial firms acting recklessly and taking on too much risk; An
explosive mix of excessive borrowing and risk by households and Wall Street that put the
financial system on a collision course with crisis; Key policy makers ill prepared for the crisis,
lacking a full understanding of the financial system they oversaw; and systemic breaches in
accountability and ethics at all levels.“



8.European debt crisis:

In early 2010, fears of a sovereign debt crisis, the 2010 Euro Crisis developed concerning
some European states, including European        Union members Portugal, Ireland, Italy, Greece
 Spain, and Belgium. This led to a crisis of confidence as well as the widening of bondyield
spreads and risk insurance on credit default swaps between these countries and
other EU members, most importantly Germany.

Concern about rising government deficits and debt levels across the globe together with a wave
of downgrading of European government debt created alarm in financial markets. In 2010 the
debt crisis was mostly centred on events in Greece, where there was concern about the rising cost
of financing government debt. On 2 May 2010, the Eurozone countries and the International
Monetary Fund agreed to a€110 billion loan for Greece, conditional on the implementation of
harsh Greek austerity measures. On 9 May 2010, Europe's Finance Ministers approved a
comprehensive rescue package worth almost a trillion dollars aimed at ensuring financial
stability across Europe by creating the European Financial Stability Facility.



9. Dodd–Frank Wall Street Reform and Consumer Protection Act:

 The Dodd–Frank Wall Street Reform and Consumer Protection Act (Pub.L. 111-
203, H.R. 4173) is a federal statute in the United States that was signed into law
by President Barack Obama on July 21, 2010.The Act is a product of the financial regulatory
reform agenda of the Democratically-controlled 111th United States Congress and the Obama
administration.

The law was initially proposed on December 2, 2009, in the House by Barney Frank, and in
the Senate Banking Committee by Chairman Chris Dodd. Due to their involvement with the bill,
the conference committee that reported on June 29, 2010, voted to name the bill after the two
members of Congress. The Act, which was passed as a response to the late-2000s recession, is
the most sweeping change to financial regulation in the United States since the Great
Depression, and represents a significant change in the American financial regulatory
environment affecting all Federal financial regulatory agencies and affecting almost every aspect
of the nation's financial services industry.

Reference:
1 http://en.wikipedia.org/wiki/Financial_crisis_(2007%E2%80%93present)

				
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