Business Finance Case Study Help on Financial Crisis

Business Finance Case Study Assignment Help on Financial Crisis Introduction

Financial crisis is critical condition for a country that has an adverse impact on its economy. Overvaluation of assets and inappropriate investor behavior can cause financial crisis that can lead to recession or depression in economy of a country (Davies, 2010). This financial crisis case study assignment help paper evaluates different factors that cause financial crisis in US country. These factors were great reasons for bringing a condition of depression in US market.

Causes of Financial Crisis There are several factors such as lenient bank policies, greediness of investors, government housing policies, etc. for the financial crisis in USA. Greediness of banking institutions and investors to earn more money was a great cause of this financial crisis. Many banking and financial institutions motivated the lenders and borrowers to invest in real estate business by building relaxed credit conditions. These relaxed credit terms were in perspective of low interest rates and less requirement of needed documents and credit conditions. This decision was taken by the government to provide affordable housing loans to needy in order to make homeownership. It brought high risk in lending and borrowing implications in American market (Friedman, 2010). Credit policy terms helped the investors to arrange the fund easily in market and they invested this in property sector. Borrowers got easily loans through fake evidenced to invest in this sector at large basis. It was analyzed that half of all mortgage loans were subprime with high risk that made difficult for the banks to get again loan amount from borrowers. More investment in Business Assignment Assistance this sector caused housing bubble in global market. Real prices of houses, not nominal values increased day by day.

It was anticipated that housing prices will go higher and higher in coming time. In this regarding, speculators predicted that through investment in housing market, profits can be earned for short period of time because of high demand of house market. After some time, demand of houses started to decrease that caused downfall in prices of the houses. When bubble burst, it declined the asset prices that led to solvency of financial and banking systems in market (Gorton, 2012). In declined housing market, no one was ready to purchase property because of continuous up down in housing prices. It is because investors were not able to refund their amount to the banks and financial institutions due to decrease in asset prices. The borrowers became defaulters and increased the value of negative equity for the banking institutions because they were not able to repay the debt. Housing policies of government were not risk averse that were also reason for housing bubble and ineffective risk management. US government wanted to enhance homeownership without any planning and regulations in investment concerns. In this regarding, state and local governments also participated in implementing this policy and promoted by offering federal and own funds to the borrowers for buying the houses (Davies, 2010). Apart from this our case study assignment help experts research that, Wall Street was not able to implement effective risk management process for investments that put the country at financial risk.

In this concern, banking institutions brought some changes in financial system for their own benefits and personal gains and put at risk the financial system of the country. Government was also not able to effectively regulate and observe all banking processes and their credit policies. There was intervention of government in housing market that affected different terms and conditions involved in this market (Friedman, 2010). Policy regulated by government cannot be stated right and appropriate because it enforced the private agencies to provide the home loans on easy terms. There was lack of effective regulations in financial industry by the government. It caused default of mortgage loans because these loans were issued to persons with low credit ratings. There were another relaxation in down payment and verification that were major drawbacks of credit policy of the banks. In addition, government supported housing subsidies and policy makers executed less restrictive financial regulations that encouraged the investors to use financial system in wrong manner (Jansen, Beulig & Linsmann, 2009).

As per assignment help experts,there was another role of rating agencies in financial recession because they could not analyze the actual conditions and created wrong presumptions regarding investment in toxic financial instruments. They understated the risk involved in some securities such as mortgage-backed securities (MBS) and collateralized debt obligations (CDO) that were very risk and contributed in subprime crisis. It was because risky securities were offered with safe mortgages as mortgage derivative products that ensured the investors to invest in those investment products. These agencies transformed risky investments into safe investments that encouraged the investors to invest in those securities. Their failure led to conversion of bad mortgages into toxic financial instruments through lowering the credit quality of the loans. Securitization of subprime loans Buyers were not able to find out the actual reason behind increasing credit rating of toxic securities (Krager, 2012).It was also failure of responsible authorities that were delegated to analyze the risk and take preventive measures in adverse conditions. They could not predict risk on time that created many problems for financial system of the country.

Thus, there was lack of risk management in the financial system that inflated the housing bubble and after its explosion; the conditions were out of control. The banking institutions invested in more risk securities, while they were shifting elsewhere for running their business. Some financial institutions presented wrong data and report regarding their economic statistics that misguided the government to spend in condition of large deficit (Kolb, 2010). In USA banking sector, there is a significant role of shadow banking system that are free from same regulatory controls. This banking system also played a role in financial crisis because it facilitated the purchasing of risky assets in liquid markets. Fall in credit market enforced this system to sell these assets on depressed prices. In addition, these parallel banking institutions started to close because of big loss due to fall in credit market. This portion was one third of total private credit market. Thus, there was a great negative impact of this system on financial system that affected the financial position of the country (Rotman, 2008). Apart from this assignment help experts says that, slow recoveries of economic conditions also have been contributed in continuity of financial crisis. The recovery measurements taken by the government were not sufficient to overcome the adverse effects of financial crisis.

Conclusion As per above discussion by our business finance assignment help experts, it can be stated there were different reasons for the financial crisis in USA market. Its major cause was implementation of ineffective regulations and policies by the government that inflated the negative effects of financial crisis. Banks’ credit policies participated in generating financial crisis by increasing default of mortgage loans in the market. Along with this, desire of banking sector to earn more money and speculation of investors also contributed in price hike of housing market that caused housing bubble and burst. For this, credit agencies were also responsible because they did not evaluate the real conditions and manipulated the actual credit rating of securities for making more profits. Overall, it was a total failure of regulatory structure and inappropriate policy implementation that caused financial crisis in USA country.

References- Davies, H. (2010). The Financial Crisis. USA: Polity. Friedman, J. (2010). What Caused the Financial Crisis. USA: University of Pennsylvania Press. Gorton, G. B. (2012). Misunderstanding Financial Crises: Why We Don’t See Them Coming. USA: OUP USA. Jansen, L. H., Beulig, N. & Linsmann, K. (2009). Us Subprime and Financial Crisis – To What Extent Can You Safeguard Financial System Risks? Germany: GRIN Verlag. Kolb, R. (2010). Lessons from the Financial Crisis: Causes, Consequences, and Our Economic Future. USA: John Wiley & Sons. Krager, T. (2012). Skullduggery!: The True Causes of the Financial Crisis. USA: AuthorHouse. Rotman, J. L (2008). The Finance Crisis and Rescue: What Went Wrong? Why? What Lessons Can Be Learned? USA: University of Toronto Press.

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