3 trillion of Fannie Mae and Freddie Mac, and the $85 million for AIG, "the White House committed at least half a trillion dollars more to re-inflate real estate prices in an attempt to support the market value junk mortgages - mortgages issued far beyond the ability of debtors to pay and far above the going market price of the collateral being pledged." (Hudson, p
It's given to us by the Founding Fathers and the First Amendment -- the right to assemble, the right to say what you want to say." (Katz, p
Where risks were not identified, no plans were put in place for mitigation. Cyprus' banking system had grown to five times its GDP (Long)
Interest rates needed major adjustment and control measures that would align with the economic conditions that could have afforded better practices. Portugal's financial crisis started with rising Eurozone bond yields due to fear over liquidity, future economic growth, and suspicion of banks holding Eurozone debt (Pettinger)
This provided the underpinnings that made the sub-prime market segment possible. Banks had to look for new customers to provide lending for in order to stay competitive amongst their peers (Asensio and Lang 2010)
The loans that were resold were packaged into complex arrangements in which investors could purchase rights to a small percentage of a compiled fund of mortgages. This was meant to leverage the amount of risk exposure that any individual would face on their own (Focardi and Fabozzi 2010)
Since the ability to repay among these consumers was not at optimal levels, this represented a very risky category of borrowers. When the downturn began its course, this category, since it was already on the threshold of insolvency, represented the kindling that fanned the flames of the fire (Fratianni and Marchionne 2009)
Researchers in this field attempt to identify irrationalities that occur in the market place. This has led many individuals to question the functionality of the free market system as a whole (Konings 2009)
One of the most fundamental causes can be attributed to the dismantling of the Glass-Steagall Act. This momentous deregulation of the banking industry began when the president Clinton era passed regulations that revolutionized the way banks do business (Lal 2010)
Thus once the real estate valuation bubble burst many homeowners found themselves in situations in which they owed more on their homes than the market price would allow for. Therefore it was not only reasonable to look for better options, it was actually in their best interest financially (Mayes 2009)
Any corporation, or even governments, that were not properly leveraged faced incredible challenges brought on by the global recession. A new form of doing business emerged coined as "crisis" economics as businesses and governments toppled throughout the world (Roubini 2010)
A bubble, by definition, is an extreme example of market inefficiency that only occurs when assets are not valued at their proper levels. This is driven by emotional aspects of investments and has fueled research in a relatively new field known as behavioral economics (Salsbury 2010)
The buyers' power due to the availability of low cost loans made the speculative real estate investment market open to those who were subsequently unable to secure finance. This situation created a market place in which buyers could purchase a mortgage with no initial investment on their behalf (Zhang 2008)
The combination of them helps to place what happened into perspective. (Das, 1999) The economies of Asia became interconnected from increased amounts of globalization and more trade with developed nations (i
First Bear Stearns was acquired to JP Morgan. Then in September two catastrophic banking failures occurred as first Lehman Brothers went under and then the FDIC orchestrated the sale of Washington Mutual to JP Morgan (Dash & Sorkin, 2008)
The companies were deemed "too big to fail." The phrase, first coined during the Reagan administration -- and applied then to a handful of banks as well -- has been applied by governments multiple times throughout history (Smith & Yandle, 2009)
The prevailing attitude among banks is that they will not change their lending policies to suit public policy, and that as private entities they are free to do as they like with the TARP money they've received. To quote John Hope, chairman of a New Orleans-based bank "We're not going to change our business model or our credit policies to accommodate the needs of the public sector as they see it to have us make more loans" (McIntire, 2009)
The Financial Crisis It is widely argued, with considerable merit, that the Federal Reserve precipitated the financial crisis in the early part of this decade by holding interest rates at unusually and unsustainable levels. "The Federal Reserve's expansionary monetary policy supplied the means for unsustainable housing prices and unsustainable mortgage financing" (White, 2009)
TARP has created this market, based on a public-private model in which the government funds entities willing to bid on the assets. The underlying theory of this model is that the assets are trading below their fundamental value and with government intervention, market participants will be willing to purchase the troubled assets, thereby increasing their value (Bebchuk, 2009)
In general, the banks are not required to disclose what they have done with the money and few are willing to talk. The TARP watchdog is also working to uncover cases of misuse of TARP funds, and has uncovered 20 cases of fraud thus far (Liberto, 2009)