FINANCIAL CRISIS Case Study Solution
The global crisis 2007-2008 has shaken the whole world and previous consensus, of the popular policy makers and financial institutions that leaning against the wind will not offer any solution to the regulatory and Micro-Prudential institution.As it offers impractical and undesirable results for the institutions.(Wallison, 2015).Since the last crisis, the regulatory field initiatives to strengthen against the “leaning against the wind” orientation has progressed a lot while the monetary policy is still at a relativel yearly stage. However, it is important to draw the rationale on the elements and factors that have been the source of the shocks including monetary policy and financial institution. But first, it is important to understand the independent sources of shock against the policies.
There is already an extensiveliteratureemphasizing the role of the financial sector as an amplifier of the other sources of the shock. Credit policies, monetary policies and technological frictions leading to collateral constraints. While blaming the banking and financial institution for the rise of the financial crisis, But according to Wilson, these financial crise shave occurred due to eased real state loans or mortgage policy that have amplified the bubble and increase the risk on return year by years.
In doing so, the government eased the policy of acquiring the housing loans which lead to attracting the below income level to acquire the loans at single payment period. The free policy leads to increasing risk of the collapse or default that ultimately resulted in bubble burst and directly gave rise to the financial crisis.
Sine there are different actors that played apart in bringing the financial crisis , the main ways identified by Wilson are the government loose monetary policies and housing loans that took the whole US into the grip It raised the attraction to acquire the ownership of the house, in which the interest rate was reduced to attract, however year by year when the investment became risky and the region started facing the outcomes of the policy due to increased defaulted rate, the interest rate got higher to control the situation, however, instead of doing better, the high interest rate flaked the reaming borrower sand thus burst the bubble.
THE financial crisis not only remain in the boundary of real estate and housing sector, but it disturbed the economic balance and equilibrium of almost all the areas .None of the sectors remain unaffected by the crisis.In the happening of the crisis, the housing loan directly affected and attacked the financial institutions which again created a “domino effect” on banking sector which in turn affected the industries.In doing so, the companies faced the cash deficient to meet the requirements of the business,while the buying power of the consumer totally eroded due to the crisis.
In such situation, many companies laid off have employment means leaving people jobless, while in turn affected the business due to no purchasing power in the market. The pheno men on did not stop at this, in fact, it made the functional and operations of the business difficult to pursue because of inadequate cash and returned on investment leading to shutting down of the business and filing for bankruptcy. This happened because many businesses relied heavily on Bank loans that failed to fulfill the needs due to back-endhousingloancollapse.
FINANCIAL CRISIS Harvard Case Solution & Analysis
Also, these events affected the market equilibrium by offering low paid jobs resulted in low incomes and thus spending on only commodity products. Many people started saving the income in order to prepare themselves for future. Hence the whole paradigm of US economy shifted from “spending economy to saving the economy.” Also since many companies filed the..............
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