Lessons from the Sub-Prime Crisis

The impact of the current financial crisis crumbnot be everywhereemphasized. Bear Sterns was sell to J.P. Morgan Chase at a huge discount, Merrill Lynch was bought over by Bank of America, Lehman Brothers has filed for desireruptcy protection, Goldman Sachs and Morgan Stanley have converted into bank holding companies and most recently, Washington Mutual Bank was exclude by the federal Office of Thrift Supervision. The repercussions resulting from the subprime crisis are so great that the U.S. Congress is planning a US$700 one million million million plan to buy out the distressed mortgage-backed assets. Looking forward, what lessons plunder we learn from this once-in-a-half-century, probably once-in-a-century type of event so that we can prevent another crisis of such magnitude from happening once again? To answer that question, we must first look at the causes of the crisis. The grow of the problem can be traced back to increased sub-prime loaning during the U.S housing boom. Lenders were willing to make loans to borrowers with high credit find as they were confident that the U.S housing boom was liberation to put out and that gave them protection against defaults. However the good days did not last. As interest rates increased, many borrowers found it hard to refinance their loans and as a result, forced to default on their payments.

transgression rate rose to 21% in January 2008 and 25% in May 2008. With increased foreclosures, the housing prices started to plummet. Till here, the situation looked situate and deemed unlikely to have a significant impact on the broader economy. However there is more than meets the eyes. While lenders are engross making loans to home owners, there is another activity going on within the investment banks securitizations of the mortgages. Lenders realize that their huge redact in sub-prime loans is too findy and decided to transfer the risk through securitizations of these mortgages. Investment banks underwrote the issue and sold the end-products (Collateralized Debt... If you want to start up a full essay, order it on our website: Orderessay

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