Free «The Mortgage Meltdown and Wall Street Failure» Essay Sample

1. The first video was very interesting because it described the preconditions and the background of the financial crisis. The crisis started in the Wall Street because many banks invested in the mortgage securities, and thus lost a lot after the mortgage bubble burst. Bear Sterns was the first investment bank to have failed. Rumors about that failure, especially on the CNBC channel, increased market uncertainty and panic. Consequently, many other financial institutions saw their shares suffer due to the significant interconnection in the financial market. The U.S. government intervened too late and could not avoid the recession.

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2. The second video describes the credit market, its principles and methods. Mortgage market is a kind of credit market, where borrowers use credits to buy houses. Mortgage market’s failure was the main reason of the financial crisis. Credit institutions were buying both safe and risky mortgages, and were selling them to investors through the collateralized debt obligations. All parties of this process believed that even risky mortgages are worth buying, because the houses’ prices were rising. However, after many borrowers had failed to pay, the situation became uncontrollable, and the crisis started.

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3. Henry Paulson and Ben Bernanke were probably the most influential individuals during the beginning of the crisis. Both of them had a huge authority and responsibility, and their actions had a direct impact on the emergence of the crisis. Both of them supported liberal financial sector, so they did not want to intervene in it. However, it became clear later that the government had to do something to save both the U.S. and the global economy. Their first try to give $700 billiards to the economy did not pass. Then they decided to make direct capital injections into the banking system. Though many people criticized this decision, I think it was the right one. However, they should have done something much earlier.

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4. The effect of the financial crisis is significant as it has an influence on the global economy. The prices are soaring due to the economic recession. Many people have lost their jobs, and the unemployment rate is very high. Furthermore, it is very difficult to find a job even now, five years after the crises has started. Houses’ prices are low, and this is bad for those who want to sell their houses. The GDP growth rate is low too. Furthermore, the forecasts for the future are not optimistic.

5. The U.S. economy will face another big problem in 2013. This is the “fiscal cliff”, a combination of tax increases and spending reductions. At the end of 2012, some tax cuts will expire, and businesses will have to pay more. Moreover, there will be some cuts of the government’s expenditures in the defense and health sectors. According to The Economist (2012), the total hit will be “about 5% of GDP”. Consequently, these factors will have a significant impact on the U.S. economy.

6. The classmate’s posting is a good one, because it gives answers to almost all necessary questions. However, it contains some grammar, punctuation, and lexical mistakes. My classmate did not give full answers to some questions. First, he/she mentioned only about Bear Sterns, and did not mention the following, even more important bankruptcies. Second, he/she did not express his/her point of view whether the decisions with economic bailouts for the banking system were the right ones. He/she just wrote: “they needed to do something”. Finally, my classmate did not cite the source of information for the question number 5.     

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