Causes of the Financial Crisis

Causes of the Financial Crisis Introduction Financial crisis occurs when there is instability in the finance systems which pose danger to the economic, political, social and international affairs leading to decisive changes. It will reveal perspectives on the functioning situation of monetary economies. Financial crisis does not affect only the country itself; it is like a contagious disease that spreads to neighbouring environments and across to its partners especially in this modern time where the world is interconnected. It is financial mismanagement which leads quickly to economic destruction, diminishes individual and national wealth, lost growth, etc. It is an interruption to financial markets which is connected with falling asset prices that will result in the inability to pay debts among debtors and intermediaries that spread out through the financial system. By this happening it will cause disorder to the flow of markets capacity to pump capital within the economy. On the basis of international crisis, this commotion will overflow into national borders, causing disorder to the market’s ability to allot capital internationally. When this happens, no one takes blame or at least will admit that they foresee it coming. It causes a lot of violent changes around the country and across the globe with devastating consequences. On the aspect of Private and individuality; this will result to unemployment; people will not be able to find work, loss of properties, families will lose their homes to foreclosure process and many will be in arrears on their mortgage payments. Household wealth worth a lot of billions of Euros will disappear, life savings, retirement accounts all will go down the drain. Business and commerce; large and small businesses will feel the sting of the economic recession. Manufacturing will decline, global trade will diminish, and some will file for bankruptcy and be forced out of business (Angelides and Thomas, 2011) People will become angry about what is happening. Some people who have worked hard all their lives, obeyed the law and played by the rule will probably find themselves out of work and about to lose their family homes will not know what the future has in store for them. The segment who is mostly affected by any financial crisis is the private people and the communities. Businesses will move out of communities, banks will stop lending money; there will be shortage of cash flow, consumers reduce their spending and practically everything is at a standstill. The after effects/impacts of the crisis stays on and will be felt for decades to come, and rebuilding the economy takes a lot of hard work and dedicated efforts. In this research paper I will discourse the causes of financial crisis; what are the reasons why from time to time there is an economic recession, and enumerate why certain financial crisis are contagious. I will use the 2008 financial crisis as case study to illustrate my answer, and finally conclusion. Causes of financial crisis The causes of financial crisis could be a little complicated and not a very straight forward explanation could be given. It is a crisis on one hand that could be blamed on government action, and on the other hand, it could be blamed on government inaction (is not doing enough) but the bottom line is that it is a problem cause by human beings. It is not caused by nature or computer error. Financial crisis have occurred dozens of times since the seventeenth century (The Economist, Jan., 2009). Understanding financial crisis is crucial in avoiding them, but that leaves the question; why financial institutions and their agencies/bank regulators never see the possibility of crisis coming? The crisis that occurred in 2008 which was the most recent and will not most probably be the last was the most severe and the most global since the Great Depression of the 1930s. I must not fail to point out where this crisis started from or its origin. Financial crisis is always associated with the financial systems of global powers, and the one that happened in 2008 was no exception. Since the collapse of Soviet Union, United States has been the dominant superpower and while momentarily being the most influential and extremely powerful nation was full of assurance that economic liberalization and the rapid growth of communications technology would give the world economic expansion. The move towards integrated global economy has been instrumental in the amassing of wealth by a few individuals which has created inequality. In the process of the government trying to bring down the gap between the haves and have not’s in the US; some of the policies gave rise to the financial crisis. We human beings have always been obsessed with money, and have the excessive desire to acquire more of it. And generally people tend to spend more than they have; banks are willing to give loans and these loans some will be paid back and some will not be paid back, by so doing this is creating huge debts that have the potentiality to cause a dramatic effect to the financial set up of the country. This is part of the reasons why from time to time Central banks pumps money into the financial system so as to have enough money in circulation. Before the start of the crisis financial institutions (mortgage brokers and bankers) were high spirited and excited about the financial bubbles that they became very optimistic and began to take huge financial risks. The professionals put in charge to manage public finance tend to ignore warnings and fail to ask questions, and not able to manage evolving risks. Failures in the financial regulation and the lack for proper supervision: When it comes to finance, there must be laws and rules put in place to govern the procedures. These principles must be adhered to irrespective of personality or circumstances. Financial experts put in charge of all financial institutions must discharge their duties effectively and professionally by acknowledging that they are there foremost to protect public money and to regulate the financial system if possible overhaul them from time to time. Financial institutions should not regulate themselves. When financial institutions regulate themselves, security protection that ensures safety and avoid sudden and widespread disaster of public money could be removed or not followed strictly. With this approach trillions of dollars will be vulnerable. By governments allowing financial firms the choice to select their own preferred regulators to work with always results in the supervising being weak. In the financial system, regulators have lots of powers in different areas to protect it (the financial system) but out of their own reasons they do not do so, that is oversight. The collapse of the housing bubble: The financial crisis of 2008 which started in the US as the result of a downturn in real estate values caused primarily by rising defaults in subprime mortgages. The government encouraged financial institutions to make mortgage loans available to low income earners and the underprivileged in their various communities under the Community Reinvestment Act (CRA) in an effort to bridge racial equality and increasing homeownership by lending one hundred percent loans for mortgages with no down payments. In the past there had been charges of racial discrimination with regards to not approving housing loans to minorities and the low income earners. To facilitate the granting of this mortgage loans a lot of times did not require all necessary documentations from the borrower and their income details. In this case a lot of this underprivileged income earners were paid on cash basis, so there was no official evidence of verifying there actual income. But a l ot of subprime lending did not take place under CRA sponsorship. Instead the majority occurred with Countrywide and New Century rather than commercial banks such as Wells Fargo, Citibank, and JPMorgan Chase (Friedman, 2011) There were lots of little programs developed by the US government at both the federal, state and local levels intended to encourage more people to buy homes, thereby channelling more artificial demand into the housing sector like The Pro-ownership Tax Code. Developers were frequently receiving hand outs, free land, new roads and tax privileges to build new homes. First-time homebuyers in some areas received thousands of dollars tax credit. There were special treatments in agreement to buy a home as an investment, for example if a couple bought a house for half a million dollars and sold it for one million they will not pay capital gains tax, but if that couple invest in business that same money in stock or any other business that is not real estate and later sell that business for profit they will pay capital gains taxes of fifteen percent. Woods Jr. (2009) in his publication said â€Å"it is not to suggest that any of these tax breaks are undesirable or should be repealed; a tax break is an oasis of freedom to be broadened, not a loophole to be closed. Instead they should be extended to as many other kinds of purchases as possible, in order not to provide artificial stimulus to any sector of the economy.† America’s Federal Reserve started the boom by increasing the supply of money through the banking system with the purpose to reduce interest rates. This system stimulated growth in the production of longer term projects such as construction, raw materials and capital goods. So this low interest rate made construction and real estate flourish vigorously in the early 2000. Real estate is not a common category of products that all consumers demand because of affordability in terms of credibility and finance. In order wards not enough consumers out there could afford to purchase expensive homes. So the Federal Reserve (Fed) came up the idea to increase money supply through banks, and banks with loose lending principles made home purchases went beyond the usual, and the notion of living the American dream was not far-fetched. Fannie Mae and Freddie Mac (Federal National Mortgage Association and Federal Home Loan Mortgage Corporation) including the Federal Housing Administration were all backed and sponsored by the Fed to be lending money to people who wanted to purchase houses. Criteria for lending were lowered and loans were approved at a record breaking level. All the new money that the Fed created was being routed into the housing market through their representative agencies Fannie Mae and Freddie Mac. This stimulus was the biggest that gave unnatural rise to the housing prices. Housing prices went up quickly instead of taking a gradual rising process supposedly with the rate of inflation or the rise in average incomes; the bubble eventually busted and the housing prices went down and this caused the housing market to collapse and recession followed; borrowers were prone to increasingly rising interest rates and falling home values, and could not be in a position to refinance their mortgages leading to higher monthly payments and constant failures to meet financial obligations resulting in foreclosures. Because of the causes arising from these defaults substantial amounts of low investment grade-rated mortgage-backed securities to default and the highest rated securities to be downgraded. The US government refusal to rescue the Lehman Brothers and eventually filed for bankruptcy was also another fall in abundance of hope. Financial institutions holding mortgage –backed securities started writing down their relative worth which made them to become more financially vulnerable, as a result causing concern over counterparty risk and as such organisations started withdrawing from doing business with them (Kolb, 2010) Financial institutions inclination on risk taking could cause financial crisis. There was a view that instincts for self-preservation inside major financial firms would shield them from fatal risk-taking without the need for a steady regulatory hand, which the firms argued, would stifle innovation (Angelides, Thomas, 2011) when financial institutions act recklessly by taking too much risk something is bound to happen, especially when institutions are involved in trading, and in trading, money can be made as well as lost, example, large investment banks and bank holding companies tend to centralise their activities more on risk trading activities that bring in heavy profits. They expose themselves to danger in acquiring and making loans to borrowers with poor credit rating. Some of these institutions grew competitively as a result of poorly executed acquisition and integration strategies that made effective management more challenging Financial institutions and some credit rating agencies are adopting mathematical models to be used as reliable predictors to predict risks, by so doing replacing judgement in a lot of occurrences. Before the financial crisis of 2008, the Republic of Ireland enjoyed a long period of economic boom, both in credit growth, bubbles in real estate, excellent and educated workforce, and an attractive location for inward investment especially from the US firms. These attracted people from all over the world to come and live in the country. Because of the rise in population there was urgent need for more houses to be built which brought growth to the construction industry and Ireland recorded the highest number of employment in the history of the state. All these led to the boost in the banking sector. The banks were willing to lend, in fact banks were literally forcing people to take loans even if they didn’t need them. Credit cards were being issued to customers as long as there was weekly income coming into their account despite the fact these customers did not request for credit card. Home owners mortgaged their homes. A lot of people were encouraged to buy houses; incentive s were given to fist time buyers so as to motivate them. At the bust, the economy collapsed, companies started folding, people were made redundant, unemployment rose, banks started feeling the heat and government came to their rescue and bailed them out. A lot of money was pumped into real estate and prices of homes went up. As a result of banks’ lending money anyhow to people personal debts were rising faster than income and foreclosures everywhere. Banks stopped lending, and prices in the market dropped. The 2008 financial crisis was contagious spillover resulting from the United States subprime market. The cross-border processing was moving with great speed because of the close connections inside the financial set up and the powerfully organised supply chains in global product markets. Financial crisis of 2008 was contagious because we are now in a global market. There is evidence of significant increases in cross-market correlations in the more recent times. Global market, social media plays an effective roll, stock markets, single currency such as the Euro and the Eurozone, all trading at international level. What happens to one affects all. Conclusion Judging from a lot of the information surrounding the 2008 financial crisis and its causes, it was more like it happened mainly because of government oversight to supervise and monitor the financial experts and their institutions to constantly make sure they are in alignment with the regulatory systems is not appropriate; that seem to miss the whole point, but rather too many loans were issued on risky basis to unqualified customers that were not credit worthy, and the government fully aware of this encouraged and kept on pumping money into circulation for their political gain. The old ways of scrutinising applications for loans were abandoned by the lending institutions for a riskier method so that everyone get to live the American dream. Bibliography Angelides, P, Thomas, B (2011) The financial crisis inquiry report: Final report of the  National Commission on the causes of the financial and economic crisis in the  United States, Government Printing Office. Barton, D., Newell. R., Wilson, G. (2002) Dangerous markets: Managing in financial crisis  John Wiley Sons Publishers Buckley, A. (2011) financial crisis, context and consequences, Financial Times Prentice Hall Ciro, T (2013) the global financial crisis: Triggers, responses and aftermath  Ashgate Publishing limited Foster, J. B., Magdoff, F (2009) the great financial crisis: Causes and consequences  NYU Press Friedman, J (2011) what caused the financial crisis, University of Pennsylvania Press Goldstein, M (1998) The Asian financial crisis: Causes, cures, and systemic implications  Peterson Institute Gordon, G. B (2012) misunderstanding financial crisis: Why we don’t see them coming  Oxford University Press Kindleberger, C. P., Aliber, R. Z (2011) Manias, panics and crashes: A history of financial  Crisis, sixth edition, Palgrave Macmillan Publishers Kolb, R. (2010) lessons from the financial crisis: Causes, consequences and our economic  Future, John Wiley Sons Publishers Portes, R., and Swoboda, A. K. (1987) Threats to international financial stability  CUP Archive The Print Edition (Jan.17, 2009) the financial crisis, The Economist Woods, Jr. T. E (2009) Meltdown: A free-market look at why the stock market collapsed, the  Economy tanked, and the government bailout, Regnery Publishing.

Abenaki Indians As Environment :: Free Essay Writer

Many people are under a false impression that early Native Americans are the original environmentalists. This is an impression that many people share. The Abenaki tribes that resided in Maine from 3700 BP were not by our traditional definition, environmentalists. In fact they were far from ecologically sound. This paper is meant not to criticize the Native Americans of the age, but to clarify their roles in the environment. To better understand this subject some background is needed.   Ã‚  Ã‚  Ã‚  Ã‚  The Abenaki People of the Northeast led a non-permanent exististance based mostly on the seasonal flux in the region. The area of land now referred to as Maine especially. Maine has always had abrupt seasons and the Abenaki used these seasons to their advantage. Their culture is one of direct appropriation with nature. This meaning that they were a culture in which nothing was permanent. Their survival depended on mobility. The Abenaki did not utilize storage as we do now, or even as the early Europeans of the time did. For each of the four seasons they stayed in areas where they would successfully survive. For instance, the summer months were spent on the coastal regions fishing and foraging while in the winter they pulled back into the interior forests for protection and hunting. However, they did return to the same part of the forests, coasts and waterfalls where their former camps had been.   Ã‚  Ã‚  Ã‚  Ã‚  Although the Abenaki culture bent to the seasons, they dramatically shaped their surrounding environments. The Abenaki tribes would change the location of the campsites every ten to fifteen years due to a variety of reasons. The southern Abenaki tribes who performed some sort of agriculture would experience severe soil exhaustion after a decade of farming that particular piece of land. The Abenaki required enormous amounts of wood for campfires, smoking meat, building homes and cooking to name but a small few. Pest infestation was also another reason that the Abenaki would move the camp. Fleas and vermin would become extremely bothersome after time had gone by and they had become accustomed to environments. They practiced a form of clearcutting known today as anthropogenic fire, anthro meaning “human'; and pogenic meaning “induced';. They would purposely ignite massive forest fires around their encampment for a variety of reasons. These areas would bur n underbrush and smaller trees but not ignite the foliage of the huge trees. This burning was good for some forms of agriculture.

Case Brief Essay

Mr. David R. Bullock filed an appeal from his convictions for attempted statutory rape, and attempted sexual exploitation of a minor. David R. Bullock put himself in numerous conversations via email and chat rooms with a Newton County Deputy Sheriff who was conducting a sting operation against pedophiles. The Deputy took on a persona of a thirteen year old female by the name of â€Å"Ashley Anne†. Many of the conversations that took place between Mr. Bullock and â€Å"Ashley† were of a sexual nature. During conversations between Mr. Bullock and â€Å"Ashley†, he discussed how he would like to engage in certain acts (sexual) with her and her friends (girls of younger age) and how he would like to video those acts. He informed â€Å"Ashley† that the conversations about meeting with her and her friends should not be discussed because it was not legal for them to meet. Eventually a meeting was scheduled for a time and a place to meet and specific instructions were given to â€Å"Ashley† on how the meeting should take place. â€Å"Ashley† was told that upon her arrival to the specified location, she should meet Mr. Bullock in a specific area of that location. History On October 18, 2002, Mr. Bullock and the decoy â€Å"Ashley† were present at the specified location, along with computer and video equipment in his vehicle, which ultimately leads to the arrest of Mr. Bullock. At the time of the arrest, Mr. Bullock did not deny having conversations with â€Å"Ashley† but explained that if she would arrive, he just wanted her to be counseled by the authorities on the dangers of meeting strangers on the internet. Mr. Bullock argues that his case is a case of entrapment and that he took no â€Å"substantial steps† towards committing the crimes he has been charged with. Issue: The sufficiency of the evidence is challenged and Appellant claims an entrapment defense for the reason that he was not predisposed to engage in the charged offenses, we shall set forth in greater detail a series of sordid internet and telephone communications between Appellant and the purported 3 victim than we usually would. Holding First, Appellant does not admit that he committed the crimes for which he was convicted and, second, there is no evidence that Appellant was not predisposed, ready and willing to commit these crimes.   Appellant did not meet his burden of injecting into the case a proper case for entrapment. Rational Appellant tendered four jury instructions alleging the affirmative defense of entrapment.   Appellant cites to the evidence that Ashley induced Appellant to take the â€Å"substantial step† of committing the crimes of statutory rape and sexual exploitation of a minor when he was not otherwise so inclined.   Appellant contends that he was only willing to express his fantasies, which was not a crime he was charged or convicted of, and he was not willing to act upon his fantasies without the inducement by Ashley.   He notes that Ashley initiated the majority of contacts with Appellant; specifically, he claims Ashley initiated seventeen of the nineteen instant messages and four of the eight e-mails between her and Appellant.   Appellant indicated the portions of the conversations where Ashley first proposed that Appellant come to Diamond and persisted in trying to set a firm date; he claims he was reluctant to act on his desires.   Appellant†™s claim that he would not have committed the charged offenses but for the enticement by Ashley is not supported by the evidence.

Obesity A Growing Problem - 2076 Words

Obesity has become an immense problem in today’s society and, like the average American, has been growing larger and larger in recent years with showing no signs of slimming down. Although our society defines being obese as having any extra weight in even the slightest of capacities, the definition is a condition characterized by the excessive accumulation and storage of fat in the body. Because obesity is such a big issue in America, one might want to know how we could let it get this bad, but who is truly responsible for obesity is a conflicting question. It is best said in a statement by Gregg Bloche, that â€Å"the lines of conflict reflect our country’s larger divides over the proper scope of personal responsibility, corporate†¦show more content†¦The problem with this is that â€Å"convenience food sellers hook consumers with high-calorie ingredients that eaters don t expect† (Bloche). We aren’t truly aware of what we are eating, and how co uld we be? In Bloche’s article the example of chicken nuggets is used, stating that it contains risky fats and oils never found in fried chicken. He goes on to state that this is â€Å"dangerous to an extent beyond that which would be contemplated by the ordinary consumer who purchases it†¦ because consumers do not knowingly accept its risks† (Bloche). They also give out portion sizes way out of hand, â€Å"it has been clearly show[n] that portion sizes of many such foods increased since the mid-1980s and, consequently, increased in calories† (Nestle par.4). Why they do this is simple, its more profitable. They give out bigger portion to get bigger rewards and â€Å"use larger portions as a way to draw in customers, regardless of the effects of the added calories on body weights† (Nestle par.10). Another issue regarding the food industry is the effect it has on children. With the rise in fast food consumption children are being set up for a life of o besity without even knowing it. â€Å"In 2008, the Federal Trade Commission reported that the food industry spends about $10 billion a year marketing food and beverages in the U.S. that appeal to children† (Toxic Food environment). Fast food industries are purposely targeting children and spending mass amounts of