Global Financial Crisis
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- Date Submitted: 12/06/2011 11:40 AM
- Pages: 8
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Introduction
The global financial crisis came to the forefront of the business world when a number of American banks and insurance companies effectively halted the global credit market which required government intervention.The Sub-Prime Mortgage Crisis was the main cause of the crisis as this caused the instability in both the American and European financial institutes. As the economy was built on credit with companies borrowing money from each other and consumers took advantage of the boom and started to borrow money to buy cars and homes, and at the end of it both investors and mortgage companies was in trouble.
The concept of subprime loans came about in the early 1900s, where loans were given to individuals who were not qualified to get a loan because they had low credit ratings or a poor loan repayment history. Fannie Mae and Freddie Mae were the leaders in the mortgage industry in the 1990s as they were promoting home ownership to those individuals who was in the low income brackets which was not normally done by the banks. This was because Subprime loans had a higher interest rate than prime rates on traditional loans. This meant individuals had to pay additional interest payments over a longer loan period and in some cases individuals was only paying the interest and never paying the principle of the loan. The financial crisis is what really exposed the flaws in these credit rating procedures.
How it began.
In September 2008, Fannie Mae and Freddie Mac two well knew Mortgage Company was taken over by the government to ensure the financial stability. Lehman Brothers filed for bankrupt, Bank of America was bought over by Merrill Lynch and American International Group (AIG) suffered when its credit rating had reduced and the Federal Government had to inject 85 billion dollars to stop it from collapsing. Soon after, JP Morgan Chase agreed to buy the assets of Washington Mutual which appeared to be the biggest bank failure in history. This factor...
The global financial crisis came to the forefront of the business world when a number of American banks and insurance companies effectively halted the global credit market which required government intervention.The Sub-Prime Mortgage Crisis was the main cause of the crisis as this caused the instability in both the American and European financial institutes. As the economy was built on credit with companies borrowing money from each other and consumers took advantage of the boom and started to borrow money to buy cars and homes, and at the end of it both investors and mortgage companies was in trouble.
The concept of subprime loans came about in the early 1900s, where loans were given to individuals who were not qualified to get a loan because they had low credit ratings or a poor loan repayment history. Fannie Mae and Freddie Mae were the leaders in the mortgage industry in the 1990s as they were promoting home ownership to those individuals who was in the low income brackets which was not normally done by the banks. This was because Subprime loans had a higher interest rate than prime rates on traditional loans. This meant individuals had to pay additional interest payments over a longer loan period and in some cases individuals was only paying the interest and never paying the principle of the loan. The financial crisis is what really exposed the flaws in these credit rating procedures.
How it began.
In September 2008, Fannie Mae and Freddie Mac two well knew Mortgage Company was taken over by the government to ensure the financial stability. Lehman Brothers filed for bankrupt, Bank of America was bought over by Merrill Lynch and American International Group (AIG) suffered when its credit rating had reduced and the Federal Government had to inject 85 billion dollars to stop it from collapsing. Soon after, JP Morgan Chase agreed to buy the assets of Washington Mutual which appeared to be the biggest bank failure in history. This factor...