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Please answer the following questions on the 2008 financial crisis please answer 1-2 paragraphs each. What was...

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Economics

Please answer the following questions on the 2008 financialcrisis please answer 1-2 paragraphs each.

  • What was the financial situation that consumed Wall Street andthe Federal government in 2008?
  • Which government officials played critical roles in addressingthe financial crisis, and how did they address it?
  • How would you critique the ethical culture of Wall Street andthose insiders on Wall Street who triggered the financialcrisis?

   4. Who is to blame? Are there any good guyshere?

Answer & Explanation Solved by verified expert
4.1 Ratings (594 Votes)
1 Financial Situation that consumed Wall Street and the Federal government in 2008 Banks allowed people to take out loans for 100 percent or more of the value of their new homes While Community Reinvestment Act directed banks to make investments in subprime areas Gramm Rudman Act allowed banks to engage in trading profitable derivatives that they sold to investors These mortgagebacked securities needed home loans as collateral The derivatives created an insatiable demand for more and more mortgages Hedge funds options etc were based on the houses Now in the zeal of making money credit agencies did not do the complete due diligence When low credit worthy borrowers defaulted it created panic in the whole banking system The mortgages value came down and whole system collapsed Banks refused to give loans and intra bank loans also evaporated Libor rates shot up This was the harbinger of the financial crisisa big secondary market for originating and distributing subprime loans developed In October 2004 the Securities Exchange Commission SEC relaxed the net capital requirement for five investment banks Goldman Sachs Merrill Lynch Lehman Brothers Bear Stearns and Morgan Stanley which freed them to leverage up to 30times or even 40times their initial investment This whole secondary market was based on sub prime housing loans When people started to default the whole building of derivatives options swaps and other financial assets came crashing downThe period leading to the financial crisis was marked not    See Answer
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