the collapse of the financial markets in 2007-2008 brought about a global econom
ID: 2666807 • Letter: T
Question
the collapse of the financial markets in 2007-2008 brought about a global economic recession. The severity of the collapse is revealed when observing the Dow Jones Industrial Average over this period of time.
Date
Price-Weighted Average Value Change in Points % Change
12/07 13265
12/08 8776 (4489) (34%)
12/09 10428 (2837) (21%)
From the assigned reading and other outside sources, write a paper that:
Describes the causes and major turning point in the development of the 2007-2008 global economic crises.
Describes the legal and ethical dimensions of the crisis.
Applies the principles learned in this course and identifies five ways this financial and/or economic crisis did or could affect a firm in the private, for-profit sector.
Describes and defends five key or critical lessons and /or conclusions after reading the book.
Presents the managerial recommendations you would make to a firm and/or to regulatory agencies after reading this book?
Explanation / Answer
I would recommend watching the movie "Too Big To Fail" it explains all of the intricacies but I will outline it below. Basically the banks gave loans to people who could not afford to pay them, so now they had a lot of bad loans on their hands. Those banks were insured by other banks through credit default swaps. Basically the insurance banks took the regular bank's bad loan and gave them a good loan. So now the insurance bank gets screwed. Metaphor: There are 100 banks in a flood plane. They all have good flood insurance. A flood comes and 90% of the banks get ruined. The insurance banks say, "We will swap your flooded and damaged banks out and give you banks that is in good conidition" This all comes at the expense of the insurance bank. The banks that gave loans to people who couldn't pay them wasn't necessarily the banks fault. It was their legal obligation to give loans to people who could not afford them. This was the result of certain politicians believing that every citizen should own a home regardless of if they had enough money to buy it or not. I understand that this does not answer all of your questions, I was just providing a framework for you to work within and to do further research. I would research credit default swaps. Also research sub prime lending (means making loans to people who may have difficulty maintaining the repayment schedule.)
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