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留学生作业代写:The 2008 financial crisis

2017-06-13 来源: 51due教员组 类别: 更多范文

下面为大家整理一篇优秀的assignment代写范文- The 2008 financial crisis,供大家参考学习,这篇论文讨论了2008年的金融危机。众所周知,2008年的金融危机无疑是一场次贷危机。这场危机始于美国,很快就波及到世界上几乎每个国家。金融危机爆发之后,美国国内生产总值增长率下降到了负值,还出现了通货膨胀,失业率也大幅上升。

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Part 1 Introduction

The 2008 financial crisis is known to all as the sub-prime mortgage crisis. The crisis started with the US and soon spread out to almost every country in the world because the US is such an economically and politically strong country in the world and that nowadays, international trade is very common. The impact of the crisis is severe and this paper will first introduce the causes for the crisis. Then the second part of the paper draw on some data to analyse the impact of the crisis. The third part of the paper will present some government and Federal Reserve policies to combat the crisis. Then the paper will conclude with my recommendations for the future.

The initial cause of the crisis lies in the mortgage industry. Homeowners wanting to buy a house buy do not have all of the money available upfront will choose to pay back the money in instalments and this is called a mortgage. The mortgage can be traded by investors and other financial institutions such as pension funds and mutual funds to generate more money. Investment banks acted as intermediaries between mortgage dealers and other financial institutions such as pension funds and mutual funds. Those funds leveraged up and borrowed money to invest in order to receive a higher return. After learning that they can earn a return much higher than the traditional investment method of buying debt from the Fed, they became greedier and wanted more mortgages to trade. The financial institutions packed up all those mortgages into bundled and called them mortgage backed securities. Those securities were given ratings. For example, the safest and with the lowest risk were given the highest ratings and the return on those securities is relatively low. In contrast, the lowest rated securities with the highest risk has the highest return. The safe securities were sold to investors and the riskier securities were sold to hedge funds.

Every party involved in the process can pass on the risk to the next step and nobody was responsible for their actions. Greediness drove them to look for more mortgages to trade and make money. However, the number of people wanting to buy houses with mortgages is limited and they had to give credit to those families who are not qualified for mortgages initially to increase the number of mortgages available in the market. Those poor people are more likely to default than those who were originally qualified for the mortgage. As the supply of houses increased, the price of houses decreased and those families who bought the house by borrowing money do not have the incentive to pay back the loan anymore now that their houses worth less. Without people paying back the mortgage, the whole chain broke and the financial crisis began.

Part 2 The impact of the financial crisis

The impact of the financial crisis was severe because many important economic indicators were affected negatively.

First, the GDP growth rate in the US decreased to negative in 2008-2009, meaning that the GDP of the US in that year decreased instead of increased. Historically, right before the crisis, the GDP was growing at about 3% from 2005-2007. In 2009, the GDP growth rate decreased to -3%.

Second, inflation is also an important indicator because just as we do not want a high level of inflation, we also do not want a very low, especially negative inflation. An inflation level less than 0% is considered deflation and the nation went into deflation in 2009. It will be hard to use policies again to bring the economy back into the original state once there is deflation. It is important for the Fed to keep inflation at the appropriate level.

Third, the unemployment rate is important because it shows how many people are still working for the country to generate income and build real economics. However, during 2009, the unemployment rate went as high as almost 10%. This percentage meant that nearly 9 million jobs were lost. Think about families that depend on those jobs to gain income and survive; it will be hard for those families to meet their daily necessities if they lose their jobs.

Last, but not least, the stock market is also severely affected. The Dow Jones Industrial Average decreased in 2008 and gradually came back to an increasing trend after the crisis. The stock market is also an indicator of how firms in the US are performing and operating. If they are making money and operating well, the real economy will grow and investors can also make money in the stock markets.

Part 3 Strategies used by the government towards the issue

The US government immediate bailed out some banks such as Bear Sterns to ensure stability in the financial services industry. However, the government is careful with which banks to bail out and which ones to let them fall. Lehman Brothers, the once top-5 investment banks went bankrupt because they could not provide sufficient assets as collateral. The government’s policy regarding those banks was met with controversies and many still argued until today.

The government also passed the Dodd–Frank Wall Street Reform and Consumer Protection Act on July 21st, 2010. This was such an important act that many countries in Europe imitated the US and established similar policies to combat the crisis afterwards. The Act is mainly aimed at enhancing the transparency of the financial markets, especially the derivative markets since that is mostly traded in the secondary market instead of the primary market. The Act also put more strict regulations on credit rating agencies such as Standard and Poor so that they could not assign junk bonds high ratings any more. A new oversight council was built to evaluate systematic risk more comprehensively to ensure that risk is controlled to an appropriate level. Minimum standards for mortgages are also reset so that unqualified homeowners cannot be given easy credit to decrease the default rate of mortgages.

In addition to government policies, the Federal Reserve also implemented many policies that were aimed at combating the crisis. The most famous policy is the three round of quantitative easing happened in 2008, right in the middle of the crisis, in November 2010, and in September 2012. During the first round, the Fed bought $600 billion mortgage-backed securities to increase the money supply circulating in the market and to further stimulate the economy. Those securities circulating in the market will make investors to purchase them using their money. Now that the securities are bought by the Fed, the investors cannot buy them anymore and the spare money left at the investors hands increased. For the second round of QE, the Fed bought another $600 billion treasury securities. For the last round of QE, the Fed bought $40 billion open-ended bond per month and this number was later increased from $40 to $80 in December 2012.

The three rounds of the QE were effective because now that the supply of money increased, the interest rate decreased and it is now cheaper for individuals and corporates to borrow money. Corporates can leverage up more and expand their business with by strengthening the debt section on their balance sheets. The stock market gradually came back to their original levels. The inflation rate is at least no longer negative and that nation went out of deflation. Although the unemployment rate is still not very satisfactory, it is already better than what it was like in the middle of the crisis. The GDP growth rate also came back from the negative values. So in short, the government policies and the Fed policies worked together to bring the country out of the financial crisis.

Part 4 My recommendations

Although that every country in the world has worked hard to combat the crisis, I cannot say that we are completely out of the crisis yet and there are still much more for us to do to build a better world. I recommend that first, everyone should have at least some education about finance to raise the awareness of a potential financial crisis. High schools could teach some basic knowledge about finance so that every citizen in the world knows that the financial crisis is not something that happens only on the Wall Street and that have nothing to do with them. Second, I recommend that everyone who actually works in the financial industry acts within the rules and regulations, without unlimited greediness to make money. Business ethics needs to be emphasized when people are taking arbitrage opportunities to make money. When you are faced with the decision of what to do in the future, chose what is morally correct instead of choosing the path that makes the most money.

Part 5 Conclusion

In conclusion, even though the financial crisis of 2008 hit us hard, the US government, the Fed, and the government and central banks in many other countries in the world all worked hard to bring us out of the crisis. For the individuals in the society, we should all beware of what is happening in the financial world and be educated more because finance and economics are aspects that affect everyone in the world, not only those working in that industry. I sincerely hope that we have all learned a lesson from this crisis and will not fall into crisis again in the future.

Reference

Bureau of Labor statistics. http://www.bls.gov/. Accessed 29 Nov 2016.

Irwin, Neil."Quantitative Easing is Ending. Here's What It Did, in Charts". The New York Times. 31 Oct, 2014.Accessed 29 Nov 2016.

Jickling, M. “Causes of the Financial Crisis”. Congressional Research Service. 09 Apr. 2010. Accessed 29 Nov 2016.

Trading Economics. http://www.tradingeconomics.com/. Accessed 29 Nov 2016.

“Wall Street Reform: The Dodd-Frank Act”. The White House. https://www.whitehouse.gov/economy/middle-class/dodd-frank-wall-street-reform. Accessed 29 Nov 2016.

World Bank Database. http://data.worldbank.org/. Accessed 29 Nov 2016.

Yahoo Finance. http://finance.yahoo.com/. Accessed 29 Nov 2016.

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