Describe The Financial Crisis Of 2007–2009

Describe The Financial Crisis Of 2007 2009 What Were Th

Part 1: Essay Describe the financial crisis of 2007-2009. What were the primary causes of this financial crisis?

Part 2: 1. Ira Schwab opens up a Schwab IRA and places $2,000 in his retirement account at the beginning of each year for 10 years. He believes the account will earn 5 percent interest per year, compounded quarterly. How much will he have in his retirement account in 10 years? 2. The city of Glendale borrows $48 million by issuing municipal bonds to help build the Arizona Cardinals football stadium. It plans to set up a sinking fund that will repay the loan at the end of 10 years. Assume a 4 percent interest rate per year. What should the city place into the fund at the end of each year to have $48 million in the account to pay back their bondholders?

Part 3: Matthew is considering several possible compensation alternatives for services he has provided as a consultant: Option A: Matthew could receive $8,000 today. Option B: Matthew could receive $2,500 at the end of each of the next four years. Option C: Matthew could receive $12,000 five years from now. Required: 1. Calculate the present value for each option assuming Matthew can earn 7 percent on any investment funds. 2. Which option results in the greatest financial benefit to Matthew? 3. If Matthew earns 10 percent, will that change your answer to #2 above? Please explain.

Part 4: Tom and Mary James just had a baby. They heard that the cost of providing a college education for this baby will be $100,000 in 18 years. Tom normally receives a Christmas bonus of $4,000 every year in the paycheck prior to Christmas. He read that a good stock mutual fund should pay him an average of 10 percent per year. Tom and Mary want to make sure their son has $100,000 for college. Consider each of the following questions. a. How much does Tom have to invest in this mutual fund at the end of each year to have $100,000 in 18 years? b. Tom’s father said he would provide for his grandson’s education. He puts $10,000 in a government bond that pays 3 percent interest. His dad said this should be enough. Do you agree? c. If Mary has a savings account worth $50,000, how much must she withdraw from savings and set aside in this mutual fund to have the $100,000 for her son’s education in 18 years?

Part 5: Essay Some suggest that a firm should seek to maximize the welfare of all its stakeholders, such as employees, customers and the community in which it operates. How would this objective conflict with the one of maximizing shareholder value? Do you believe such an objective is feasible?

Part 6: Joe Downey is currently 65 years of age. He is currently drawing $20,000 a year out of his IRA. He expects to live to 100 and wants to know what he needs now to insure himself that he will be able to draw the $20,000 at the beginning of each year for the next 35 years. He believes the account will earn 6 percent compounded annually for the next 35 years. How much money does he need in his account today?

Paper For Above instruction

The financial crisis of 2007-2009, often termed the Global Financial Crisis, was a pivotal event in economic history, characterized by widespread banking failures, bailout of financial institutions, and a severe recession impacting economies worldwide. Its causes were multifaceted, involving excessive risk-taking, lax regulation, the bursting of the housing bubble, and the proliferation of complex financial derivatives. This essay explores these primary causes and their interconnectedness that culminated in the crisis.

One of the fundamental catalysts was the overextension of credit, particularly in the housing sector. During the early 2000s, mortgage lenders rapidly expanded credit availability, issuing subprime mortgages to individuals with poor credit histories (Mian & Sufi, 2014). Financial institutions repackaged these risky mortgages into mortgage-backed securities (MBS) and collateralized debt obligations (CDOs), which were erroneously perceived as low-risk investments due to flawed credit rating agencies' assessments (Acharya, Richardson, van Nieuwerburgh, & White, 2011). This encouraged investors worldwide to purchase these securities, believing they were safe assets, thus inflating the housing bubble.

The housing bubble burst in 2006-2007 when home prices declined sharply, leading to a surge in mortgage defaults and foreclosures. This unraveling exposed the fragility of financial institutions holding large amounts of mortgage-related assets. Banks faced huge losses, resulting in a ripple effect across the financial system, as liquidity dried up, credit markets froze, and confidence in financial institutions eroded (Brunnermeier, 2009). These interbank and consumer credit contractions severely impeded economic activity, triggering the global recession.

Lax regulatory oversight played a significant role in enabling excessive risk-taking. Regulatory agencies failed to oversee burgeoning Shadow Banking systems and derivative markets adequately. The growth of securitization practices became difficult to regulate, and inadequate capital buffers contributed to the instability (Cecchetti, 2009). Moreover, the belief in self-regulating markets and the assumption that housing prices would always rise led to complacency among regulators and financial institutions.

Another contributing factor was the accumulation of systemic risk by large, interconnected financial firms. Institutions like Lehman Brothers grew so interconnected that their collapse threatened the entire financial system. Lehman Brothers' bankruptcy in September 2008 marked a critical point in the crisis, causing panic and forcing massive government interventions worldwide (Ferguson, 2009).

The crisis's aftermath underscored the need for comprehensive financial reforms. Regulations such as the Dodd-Frank Wall Street Reform and Consumer Protection Act aimed to increase transparency, reduce risky practices, and bolster financial stability (Skeel, 2014). Nonetheless, the crisis illustrated how interconnected financial markets and complex derivatives could amplify shocks, making financial systems more resilient remains a central challenge for policymakers (Arner, Barberis, & Buckley, 2016).

References

• Acharya, V. V., Richardson, M., van Nieuwerburgh, S., & White, L. (2011). Guaranteed to Fail: Financial Frictions and Asset-Backed Securities. Review of Financial Studies, 24(10), 3063–3104.
• Arner, D. W., Barberis, J., & Buckley, R. P. (2016). The Evolution of Fintech: A New Post-Crisis Paradigm? Georgetown Journal of International Law, 47, 1271-1319.
• Brunnermeier, M. K. (2009). Deciphering the Liquidity and Credit Crunch 2007–2008. Journal of Economic Perspectives, 23(1), 77-100.
• Cecchetti, S. G. (2009). The False Promise of Financial Regulation. The Economic Journal, 119(534), F136-F150.
• Ferguson, N. (2009). The Ascent of Money: A Financial History of the World. Penguin Press.
• Mian, A., & Sufi, A. (2014). House of Debt: How Problematic Mortgage Lending Was Fueled byhousehold Debt. University of Chicago Press.
• Skeel, D. A. (2014). The New Financial Deal: Understanding the Dodd-Frank Act and Its Consequences. Wiley.