Free «The Economy of the United States» Essay Sample

The downfall of the united states banking system resuled from the business cycle that develop in the economy It is was trigged by recession the Economy of United States being a world financial system was hit hard by this recession especially the banking sector . the recession has resulted to large collapse of institution and their attempt bailout by the government it has also resulted to downturns in stock markets in the world.the housing sector many ares has sufferd a lot of evictions ,prolonged vacancies and foreclosures .this recession is viewed by economists as the wosre crisi since the great depression in the 1930 It resulted to failures in key businesses, reduction in the consumer wealth with an estimate of billions in u.s dollars , a large l financial commitments incurred by governments, and a decline in economic activity. A number of suggestion on the causes have been suggested by experts This crisis, that had its roots in the after years of the 20th century, became well known in 2007 it exposed a lo t of weakness in financial industry regulation and in the global financial system. In this crisis the subprime problem taht has resulted to rise in morgage delinquencies and foreclosures in the United States this caused advers problem for banks and financial markets around the world. The citizens of pay their services on credit. The most popular is a Housing Credit.

A rise in the housing prices trigged the increase in tthe banks leading in their belief that it would be paid back faster ignoring the interest rates. The increased easy credit and money inflow resulted to the housing bubble. Loans like mortgage, credit card, and auto were easly obtained . financial innovation made it easier for investors around the word to invest in U.S. housing market. Falling prices led to the foreclosure. Which has eroded financial strength of banking institutions. The citizens were unable to pay for ths housing credit due to different reasons .the default risk acceklerated by declining prices in the real estate was one of the causes of the bank downfall a large number of the mortgages issued the prevous years to subprime borrowers had an adjustable-rate at the start of the crisis house. prices were declining refinancing the morgage became very difficult the adjustable mortgages rates began to incresa increasing , mortgage delinquencies. Securities of the subprime mortgages, industies held by financial firms, lost their value . Bank runs due Bailouts and failures of financial firms were experienced in the major banks major financial failed the governments tried to bail them out or merged during this crisis.

The causes varied between different banks but in a decline in the value of mortgage based securities held by different companies resulted in their insolvency, an equal of bank runs which is the investors pulling out their funds and inability to secure funding in credit markets The financial firms had borrowed and invested large sums of money in comparison to their cash or shareholders capital, the leveragrd ratio increase making banks vulnerable to unexpected credit market disruptions. The big banks had a pooled , debts of $4 trillion, some went bankrupt like the Lehman Brothers others like Bear Stearns and Merrill Lynch were taken by other banks , or the government bailed them out.Government-sponsored enterprises had guaranteed nearly $5 trillion in mortgage obligations, they were placed under receivership, failures of large financial institutions in the United States, because of exposure to securities of subprime loan and credit swaps issued to insure mortgage loans and their issuers, developed into a global crisis resulting in a number of bank failures in Europe and a reductions in the value of equities and commodities worldwide.The systemic meltdown, caused the crisis to hit its most critical stage. This stage is the same as bank run on the money market mutual funds, which it investment are in commercial paper issued by corporations to finance their operations and payrolls.. This affected the ability of corporations to replace their short-term debt. The government response was extending insurance to money market accounts equivalent to bank deposit insurance through a guarantee and with Federal Reserve programs to purchase commercial paper. The financial crisis increased based on the accumulation of debt to finance the cause problem the rising tide of bad debt brought deep crisis that was a threat to bank insolvency Secondly , the change in Reserve policies from the earlier attempts to rescue the institutions like Bear Sterns created a panic between bank in the lending sector. Uncertainity of the survive led to ceases of lending resulting to a seize up This resulted to abrupt changes in policy aimed to bailing-out the banks. This policies varied across countries.


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