Free «U.S.  banking  system.» Essay Sample
It is well known that the economy develops cyclical. And looking backwards at the time before the World Financial Crisis hit the World economy we can clearly see and understand that the condition of the US and Europe economic system was overwhelmed. Economy of United States is a world wide financial system. It involves every economy of the World countries. I remember, in August 2007, there was the first hearsay, supposing that the Crisis is coming, and it caused by irregular building of US Economy System. The smartest companies took the rumor into account and started to get ready for the worst consequences. Unfortunately the quantity of that kind of companies was insignificantly. Since that time the highest rise of world wide economies started to fall and this was the end, that has become to a new start. The Crisis was unexpected; it was so sudden, that ordinary people did not understand where it came from and why the system, that was so steady before is crushing down? Recently the economy was flourishing, people were employed, stock markets were rising, bringing the profit. Actually, there were problems. Great problems. It will be honest to say, that the problem was concerned only in US economy system, but Europe is so connected with US, especially Great Britain. We don’t understand why the Government of US thought the biggest problem of the economy will be solved somehow, and we’ll only waits our time on thinking of it. Let’s rather see the structure of the Crisis in details. Subprime mortgage crisis in United States of America. The subprime mortgage crisis is an ongoing financial crisis triggered by a dramatic rise in mortgage delinquencies and foreclosures in the United States, with major adverse consequences for banks and financial markets around the globe. United States citizens are used to live paying bank credits for every single need. The most popular is a Housing Credit.
When most of citizens don’t pay the Housing credits (the most expensive) due to different reasons, what should they charge to Financial Institute so it could cover the expenses in case of citizen’s default, while prices on real estate are declining? This is one of the reasons. The crisis, which has its roots in the closing years of the 20th century, became apparent in 2007 and has exposed pervasive weaknesses in financial industry regulation and the global financial system. Approximately 80% of U.S. mortgages issued in recent years to subprime borrowers were adjustable-rate mortgages. When U.S. house prices began to decline in 2006-07, refinancing became more difficult and as adjustable-rate mortgages began to reset at higher rates, mortgage delinquencies soared. Securities backed with subprime mortgages, widely held by financial firms, lost most of their value. Because investors suspected what is going to happen, instability is the one of main factors, that influence on investor’s intention to buy the stocks. Investors started to sell, which led to a strong bearish trend on the basic Indexes. The result has been a large decline in the capital of many banks and USA government sponsored enterprises, tightening credit around the world.

Bailouts and failures of financial firms

People queuing outside a Northern Rock bank branch in Birmingham, United Kingdom on September 15, 2007, to withdraw their savings because of the subprime crisis was a shock for a community! Several major financial institutions either failed, were bailed-out by governments, or merged (voluntarily or otherwise) during the crisis. While the specific circumstances varied, in general the decline in the value of mortgage-backed securities held by these companies resulted in either their insolvency, the equivalent of bank runs as investors pulled funds from them, or inability to secure new funding in the credit markets.
These firms had typically borrowed and invested large sums of money relative to their cash or equity capital, meaning they were highly leveraged and vulnerable to unanticipated credit market disruptions. The five largest U.S. investment banks, with combined liabilities or debts of $4 trillion, either went bankrupt (Lehman Brothers), were taken over by other companies (Bear Stearns and Merrill Lynch), or were bailed-out by the U.S. government (Goldman Sachs and Morgan Stanley) during 2008.Government-sponsored enterprises (GSE) Fannie Mae and Freddie Mac either directly owed or guaranteed nearly $5 trillion in mortgage obligations, with a similarly weak capital base, when they were placed into receivership in September 2008. For scale, this $9 trillion in obligations concentrated in seven highly leveraged institutions can be compared to the $14 trillion size of the U.S. economy (GDP) or to the total national debt of $10 trillion in September 2008. Major depository banks around the world had also used financial innovations such as structured investment vehicles to circumvent capital ratio regulations. Notable global failures included Northern Rock, which was nationalized at an estimated cost of ?87 billion ($150 billion). In the U.S., Washington Mutual (WaMu) was seized in September 2008 by the USA Office of Thrift Supervision (OTS). Dozens of U.S. banks received funds as part of the TARP or $700 billion bailout. Financial lenders are facing a major industry reorganization Monday that promises to change the face of banking in the United States. (From Washington, VOA's Sean Maroney reports). Early Monday, the U.S. investment bank Lehman Brothers announced that it will file for bankruptcy. In a statement, Lehman said its filing for Chapter 11 in U.S. bankruptcy court will not affect its broker-dealer subsidiaries or other units. Sunday, talks aimed at stabilizing the 158-year-old investment bank ended after Bank of America and Britain's Barclays Plc decided against buying it. Lehman was once the fourth-largest investment bank in the United States. But market analyst Hugh Johnson says bad investments in real estate and other areas brought a drastic fall in the value of Lehman shares. "Lehman, like so many other investment banks and banks, really got, quite frankly, caught up in the housing bubble, but, like every bubble, the bubble ended and now we're seeing the downside of that bubble," Johnson said. On Sunday, Merrill Lynch agreed to be bought out by Bank of America for some $50 billion. Analysts say the move will result in the nation's prime lender (BA) becoming even bigger. In a separate move late Sunday, the U.S. Federal Reserve announced several initiatives to make it easier for financial institutions to get emergency loans from the U.S. central bank. Officials from 10 global banks and securities firms also announced a $70 billion loan program that the companies could use to help ease a potential credit shortage. Government and banking officials are concerned that the failure of a large institution, like Lehman Brothers, could shake confidence in the financial system and hurt the value of other firms. Politicians still getting their marching-orders from Wall Street. The leaders of Europe's four largest economies (England, France, Germany, Italy) held a meeting, where they discussed better ways to monitor the world's markets and banks. They did not, however, push to create a new regime of oversight, regulation and punitive action that would be directed at financial fraudsters and their structured Ponzi-scams. Politicians love to talk about greater transparency and watchdog agencies, but they have no stomach for establishing the hard- fast rules and independent policing organizations that are required to keep the carpetbaggers and financial hucksters from duping gullible investors out of their life savings.
That is simply beyond their pay-grade. And that is why even now when the world is facing the most serious financial crisis since the Great Depression, corporate toadies like British Prime Minister Gordon Brown merely reiterate the script prepared for them by their boardroom-paymasters: If these agencies don't reform themselves, the Europeans would turn to regulatory response to enforce change. Media used to say: “The Financial Crisis has showed the World who is who and the worth of it all” And it is a real true. For instance, Lemmon brothers, that Financial Institute as many others operated with too much complicated financial instruments, and when the market is full of the same financial instruments this leads to bankruptcy of the financial companies, because they can not operate together. Historically, there is a great dependence of the whole world banking system on banking system of United States. Moreover banks of US operate with citizens, by giving the Housing Credits, and accrued loss of unpaid credits forced banks to rise the interbank rate on loans with foreign banks. Therefore, the foreign debt of other countries with US increased with the rates. Foreign Banks could not pay it, so they had to rise the rate with their Borrowers: individuals and Legal Entities, such as other banks, construction companies and other. Do you think investor would be interested to invest in a countries securities and currency when a country has this kind of problems? September 2008 was the lowest decline in world wide indexes. Stock Exchanges in Russia was stopped in operations with all of the securities. The crash was that big. So this is a good lesson for world’s further development, as this crisis became a history. US banking system will be reformed. It is what happening now.

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