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    Big Bubble & Credit Financial Crisis of 2007-2008

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    Lian Garl
    The document summarizes the causes and effects of the 2007-2008 financial crisis. It discusses how the belief that home prices would continually rise led to risky subprime lending practices. As home prices declined, borrowers defaulted on their mortgages in large numbers. These mortgages had been securitized and sold widely, spreading the risks and losses across financial markets. Investor uncertainty over mortgage-backed assets led to a credit crunch and global financial crisis. The document holds lenders primarily responsible for the crisis due to their risky and unregulated lending practices driven by profits. It argues that proper governance and oversight of financial institutions could have prevented or mitigated the crisis.

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    Big Bubble & Credit Financial Crisis of 2007-2008

    Uploaded by

    Lian Garl
    42 views6 pages
    The document summarizes the causes and effects of the 2007-2008 financial crisis. It discusses how the belief that home prices would continually rise led to risky subprime lending practices. As home prices declined, borrowers defaulted on their mortgages in large numbers. These mortgages had been securitized and sold widely, spreading the risks and losses across financial markets. Investor uncertainty over mortgage-backed assets led to a credit crunch and global financial crisis. The document holds lenders primarily responsible for the crisis due to their risky and unregulated lending practices driven by profits. It argues that proper governance and oversight of financial institutions could have prevented or mitigated the crisis.

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    The document summarizes the causes and effects of the 2007-2008 financial crisis. It discusses how the belief that home prices would continually rise led to risky subprime lending practices. As home prices declined, borrowers defaulted on their mortgages in large numbers. These mortgages had been securitized and sold widely, spreading the risks and losses across financial markets. Investor uncertainty over mortgage-backed assets led to a credit crunch and global financial crisis. The document holds lenders primarily responsible for the crisis due to their risky and unregulated lending practices driven by profits. It argues that proper governance and oversight of financial institutions could have prevented or mitigated the crisis.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    42 views6 pages

    Big Bubble & Credit Financial Crisis of 2007-2008

    Uploaded by

    Lian Garl
    The document summarizes the causes and effects of the 2007-2008 financial crisis. It discusses how the belief that home prices would continually rise led to risky subprime lending practices. As home prices declined, borrowers defaulted on their mortgages in large numbers. These mortgages had been securitized and sold widely, spreading the risks and losses across financial markets. Investor uncertainty over mortgage-backed assets led to a credit crunch and global financial crisis. The document holds lenders primarily responsible for the crisis due to their risky and unregulated lending practices driven by profits. It argues that proper governance and oversight of financial institutions could have prevented or mitigated the crisis.

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    You are on page 1of 6

    BIG BUBBLE & CREDIT

    FINANCIAL CRISIS OF
    BY: GROUP 6
    2007-2008 BALDOMERO, GARLIAN
    BALINGIT, JAIME IV
    MAGTOTO, PATRICIA ANN
    PINEDA, JETRHO
    ROMERO, CZARINA
    1) What are the causes of the big
    bubble & credit financial crisis?
    ● It's a belief that home prices do not decline and it is this belief that led generations of
    consumers to regard a home purchase as the foundation of their financial programs.
    As the rate of appreciation in home values dramatically increased during the early years of the
    21st century, many people began to think that home values not decline, but that they would also
    continue to rise indefinitely. One particular scenario in the housing sector which experienced a
    dramatic bubble and subsequent downfall was the subprime mortgage market. Subprime
    mortgages are issued to households with below-average credit or income histories and are
    generally considered more risky than traditional "prime" mortgages. Although they refer to a
    minority of the overall market, subprime mortgages became increasingly important over the
    years. Other subprime borrowers were lured into their mortgages by the initially low payments,
    but when these seducing rates reset to current market rates, many homeowners could not
    afford the new, much higher payments. As the decline in home prices drastically increases, an
    increasing number of people found themselves struggling to make their monthly mortgage
    payments. This situation eventually led to higher levels of mortgage defaults. Many of these
    mortgages had been "securitized" and resold in the marketplace. This dispersion of risk is
    generally a good thing, but in this instance it also meant that potential losses from defaults
    were spread more widely than they otherwise might have been. Defaults had an inordinate
    impact on certain bond issues. This is because in a typical mortgage-backed security deal, any
    mortgage defaults initially affect only the lowest-rated tranches. This means that even if the
    overall default rate for the pool of mortgages is relatively low, the loss for a particular tranche of
    mortgage-backed securities could be substantial. When the investors that hold these tranches
    employ leverage, losses can be even greater. As concerns about the housing decline grew,
    market participants began avoiding mortgage-related risks. Investors soon began to question
    whether financial institutions knew the true stage of the losses on their books. This uncertainty
    led to sharp decrease in the stock prices of many financial firms, and a thriving unwillingness
    to bid for risky assets. As investors unsuccessful to sell in a market with no buyers, prices fell
    further. Soon, most risky assets were falling rapidly in price and panic began to creep into the
    marketplace. The credit crisis had started.
    2) Who must be held accountable
    or responsible for the crisis?
    ● The persons who are to be blamed and held
    responsible for the incident are the lenders. They
    were too busy on how to get higher income thinking
    that if they were to add risk, big returns will be the
    outcome. They didn't require down payments on
    mortgages. They lack discipline and were poor in
    monitoring which leads to their difficulty in
    collecting. Many instances showed that
    irresponsible homeowners had been considered
    default and eventually will not pay their debts
    afterwards.
    3) Would it be easy to make these
    people accountable?
    ● The crisis that happened in 2007-2008 started with the intention of
    the bank to make much money as they can by granting loans. Not
    thinking that even if they gain a lot of money it can still effect the
    economy. The increase in money supply had led the banks to
    increase the prices of houses and in return the increase in the prices
    of the houses had pushed the people to borrow money from the
    bank. Debts are growing faster than income and there will always be
    some persons who won't be able to pay their debts. Because of this
    scenario the banks were frightened that more and more debts will be
    unpayable. This situation was the cause of the financial crisis, banks
    will only grant loans on which they thinks that lenders will have tha
    capability to pay. Through this case prices went down and everythng
    else followed including the economy.
    4) How do you relate the crisis to
    good governance?
    ● Good governance is about the processes for making and
    implementing decisions. It’s not about making ‘correct’ decisions, but
    about the best possible process for making those decisions.
    The crisis began with different parties. They bear in mind that it is
    okay to pass along the risk that they made to another party without
    properly analyzing whether it would be beneficial to them. They did
    not look into the possible outcome that what they're doing is making
    a huge crisis to the economy. Because of this, the economy
    experienced an economic boom. If only they were able to apply
    good governance along with other solutions, when the time comes,
    they might even prevent or reduce the risk to an acceptable level.
    Remember, the economy is a moving body, one movement on its
    part will cause the others to move.
    END OF SLIDESHOW!

    THANK
    YOU!!!

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