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Subprime Mortgage Crisis Analysis Add in library

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Question:

Discuss and provide an example answering three questions regarding subprime mortgage. With an example explain possible causes of financial crisis. Explain how financial crisis affected businesses in your own country and other countries. For this question provide an introduction, in text referencing, conclusion and list of references.
 
 

Answer:

Introduction:

The crisis of the subprime mortgage is being analysed from various different perspectives. The main reason behind the subprime mortgage crisis were fund to be the securitization of the subprime mortgages.

Securitization of the subprime mortgages was the reason behind the mortgaged backed securities and that also led to the creation of further complexities for the introduction of the collateralised debt obligations and the credit default swaps. The mortgage market was made global with the help of the securitization of the mortgages and provided many opportunities for the buyers in the country of United States to draw the funds all over the world. This report aims at specifying the causes of the crisis and its impact on Bangladesh.

 

Causes of the subprime mortgage crisis: 

When the subprime mortgage crisis took place, the Bloomberg was heard saying the following:

 “Congress forced everybody to go and give mortgages to people who were on the cusp.”

There were a number of actors that played their role in the public as well as in the private sector. It cannot be said that Congress just thought out of the blue moon that lets go and lets abolish the Steagall Act or SEC though that it was a good idea to relax the requirements of capital on the investment banks and obviously, there was no reason behind the fact when the comptroller of the currency had the idea of prempting the state laws of protecting the borrowers. All these agencies came up with their respective ideas because they wanted to earn some short term profits.

The crisis of housing accelerated the reduction of the risks that related with the writing of the bad loans. The deregulation legislation allowed the banks to act as the consumers and the institutional banks along with the hot housing markets. The lenders were the ones that were writing off the mortgages and packing them up and then selling off the same with a little amount of money on the top. All these events led to the unscrupulous lenders writing the loans even when they know that the same were bad. When the properties foreclosed, the banks should have taken the damage but actually they did not. These losses were the ones that were taken up on the shoulders by the financial institutions and the private investors. And they were the ones that were holding the collateralised debt obligations and the securities that were backed dup by the securities.

 

Effects of subprime mortgage crisis on Bangladesh: 

The following were the effects of the crisis on the countries:

  1. There was a sharp fall in the employment in United States
  2. Sharp fall in the prices of the shares all around the globe and stock prices were unable of being explained to the companies
  3. There was a requirement of reducing the prices of the properties ins many of the countries
  4. There was an increased caution when it came to excess liquidity
  5. The demand by the consumers had deteriorated
  6. The International trade became imbalances
  7. There were many adverse impacts on remittances
  8. A huge fall in the official development assistance
  9. Sharp decline in the growth of the word trade and the GDP slowed down, as per the reports of the IMF.

The following is the table of the projected slowdown in the growth on the Developing regions:

Sub Saharan Africa 6.3 4.8 -2.1

South Asia 8.4 5.2 -3.2

Middle East & North Africa 5.7 3.5 -2.2

Latin America & Caribbean 5.7 2.2 -3.5

Europe and Central Asia 7.1 3.5 -3.6

East Asia and Pacific 10.5 6.4 -4.1

2007 2009 Change

 

The following was the impact on the economy of Bangladesh:

1. 90% of the exports of the country are targeted towards the United States and other such developed countries, so when the crisis hit, that depressed the demand of the exports.

2. The country was successful to keep its exports stable during the first 6 months of the years 2008-09 but failed to keep it at pace.
 
3. The success of the exports f the country was due to the success of the same in the garments during the fiscal year. The target during the period of first 6 months were the Woven garments, knit garments, home textiles and the terry towels.
 
4. The footwear, tobacco product also showed the positive growth.
 
5. The frozen foods such as the frozen foods, raw jute, handicrafts, jute goods, ceramic products, cut flower, bicycle, vegetables witnessed a negative growth.
 
6. There was a sharp decline in the prices of shrimp.
 

Conclusion:

The financial crisis reshaped the entire world for all the future years. It was although very clear from the crisis that the ongoing regime of the financial liberalization was not able to provide the guarantee the solution to the financial distress. The need of the intervention by the government was also felt.

The financial markets in the United States came under the industrialised countries. The main reason behind the crisis were the increased pricing turmoil that led to the decline of the prices of the houses in the country of United States. This was followed by the poor lending practices by the banks. The impact of the crisis were considered to be the adverse.

 

References:

Connection.ebscohost.com, (2015). The Impact of Mortgage Securitization on the Housing Bubble and Subprime Mortgage Crisis: A Self-organization Perspective. 

Conservativefactcheck.com, (2015). CFC: What really caused the subprime mortgage crisis? 

Denning, S. (2011). Lest We Forget: Why We Had A Financial Crisis. [Online] Forbes. 

Development of a Sustainable Financial System for Bangladesh with Reference to the Global Financial Crisis: An Evaluation. 

The Global Financial Crisis: Impact on Bangladesh. 

U.S up-Prime Crisis. 

Global Recession and Its Impact on Exports and Remittances in Bangladesh.

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