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Financial Crisis of 2008 in the U.S. – Meltdown

Chan, Sun. “Financial Crisis Was Avoidable, Inquiry Finds.” The New York Times, 2011, New Ed.: A1.

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This article explores the report by Financial Crisis Inquiry Commission, where the commission is quoted to have concluded that the credit crunch could not have been “avoided.” The article summarizes the blame game of the commission, which cast a broad net to two administrations that is the regulators and Federal Reserve for allowing a disastrous creation: careless mortgage lending, extreme packaging as well as loan’s sales to investors together with securities backed using loans, which is a risky investment. Based on the article the commission also accuses a number of financial institutions for their ineptitude and greed. The Bush administration and various other persons holding office in the central bank and other financial institutions are also criticized for contributing in the crisis.

The main aim of the article is to inform the public on the findings of the Financial Crisis Inquiry Commission because it notified the public the release date of the Commission’s report and summarizes some of the findings. The article is reliable because it only report what the Commission concluded and since it is a Newspaper it informs the public on the release date and it actually achieve its objective of being an informer. Similarly, the report can be relied on because it criticizes the Commission for being separated along partisan lines which could directly impact its findings.

The article informs the researcher that there is a report by the Commission which was released on January 27, 2011 and it is worth looking at as a primary source of information in evaluating the causes of the crisis. The article will be valuable in adding more information to my argument on this paper.

Florida, Ricky. “How the Crash Will Reshape America.” The Atlantic, 2009. Web.

This source looks at the consequences of the crisis. The author explores the probable consequences that the crisis will bring into the US as well as to other nations in the world as a result of integration. Florida also explores history and assesses books or articles by other authors such as Thomas Friedman in his book “The World IS Flat” and “The World Is Spiky” which he is the author, to support his arguments. The author attempts to use the past events to explain the current event that is crisis and its impact. The article also gives some solutions to the crisis.

The main objective of the article is to show how the crisis will reshape the US. The article is reliable because it shows the current event that is hot topics and it is intended to attract wide section of the population. It is also based on personal opinion on the crisis issue but since the author obtains solutions from evaluation of past events, the article is thus objective.

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Therefore, the article is useful as a secondary source and also it will contribute to the argument on the side of consequences, solutions and past events similar to 2008 crisis.

Fuller, Guliber. “The 2007-2008 Financial Crisis: Does the EU Matter? BC Journal of International Affairs and the authors. 12(2010). Web.

This source explores EU’s reaction to crisis for verification that the European Union mattered in determining the member states’ behaviour. The researcher examines the efforts to change EU banking regulation, recovery plan by EU and push for G20 summit of 2008. This is in order to find evidence of EU changing member states’ power, interests, resources, and interest’s calculations. The article concludes that EU mattered when the member nations were not encouraged by relative-benefits consideration to contain joint action.

The aim of the article was to establish if there was practical support for contention that EU mattered throughout the crisis. The article is objective since it analyses the above mentioned factors and it also basis its analysis on observable results. Therefore, it will assist in my argument on how the crisis was tackled by various states. It will not change the topic as it will be part of the secondary sources in the literature.

Lewis, Michael. The Big Short. Washington. W.W. & Company, Inc, 2011.Print.

This book tries to explain the genesis of the credit crisis that started a decade ago in the US and culminated in the near collapse of the entire financial system. Michael Lewis explores the effects of the now famous subprime mortgages at the household level and extrapolates it to the macro level thus explaining the role of the markets in destabilizing the global financial system. To come up with this analysis the author uses the small time hedge fund managers and Deustche Bank manager Greg Lippmann who made handsome profits to illustrate how everybody including polished bankers and lenders were caught off-guard as investments worth billions of dollars went down the drain.

The book also explains that investment bankers knew of the unfolding crisis as early as 2006 but chose to hide it form investors. As demand for the subprime mortgages outstripped the supply, Wall Street players continued to inflate the prices of the securities that supported the mortgages yet they knew they were covered by hedge funds. The book talks of conspiracy by investment bankers to inflate the values of securities yet they knew the value was falling and as the interest rates rose, housing prices began plummeting making refinancing difficult.

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This book is important as it gives a detailed account of what happened in the Wall Street. It explains how basic lending principles were ignored bringing untold miseries to prospective home owners as they were faced with foreclosures. In fact the whole scenario as narrated by this book points to immorality and ignorance on the part of market regulators. This book is masterpiece for any researcher who intends to know the fine details of the crisis that is only comparable to the Great Depression and will be valuable to my research paper.

Hilsenrath, J., Serena N., Paletta, D. “Worst Crisis Since 1930s, With No End yet in Sight.” The Wall Street Journal, 2. 4 (2010): 45-52.

This journal article explains how far reaching the effects of the current financial crisis may be with analysts saying the worst is yet to come. The effects of the crisis are evidenced by the falling shares prices and unavailable credit as the lenders are still in shock after the housing induced financial crisis left their assets value depleted. The crisis is being taunted as the worst since the great depression only that today there are policy mechanisms to address the situation.

Since the financial crisis was brought by too much debt taken at the household level, the solution lies in discouraging further borrowing a move that will slow down economic growth. For the households to come out of the debt crisis, they need to sell off the assets to pay off the debts and also to try to revamp their capital base. This, according to the authors of this article is a process that takes time because the assets are hard to value and also few buyers are ready to take them. According to Goldman Sach’s economist Jan Hatzius, financial institutions have written down assets in excess of $ 408 billion to raise capital yet this is not enough to satisfy the demand for credit. With the expected big losses in the market, the government and shareholders have no choice but soak in the debt burden to at least end the economic contraction that is currently being experienced. This source will be valuable since it explains how difficult it is to achieve a turn around an economy that has slipped into recession.

Lanman, Scott. “Bloomberg: Fed Dollar-Funding Cut Shows Limits of Action.” 2011. Web. 

This article is about how the Federal Reserve is tackling the crisis in the US occasioned by the 2007/2008 subprime mortgage fiasco and the current European debt crisis. The Fed Reserve is making efforts to cushion the US economy from the economic turmoil in Europe by employing the policies it used to address the subprime mortgage problem. According to Bloomberg, stocks showed signs of recovery when Fed and five other banks reduced the cost of dollar loans to banks outside the US.

This source seeks to explore how various central banks in the US, China, UK and Brazil are determined to protect their economies from the financial turmoil in Europe. By lowering their base lending rates, these central banks are guaranteeing cheap credit to investors thus mitigating the effects of the euro crisis should it spill over. This article will help the researcher in understanding how the both crisis in the US and Europe are being solved using monetary policy interventions.

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