Role Played by Real Estate and Mortgages to Plunge the World Into a Financial Crisis

Document Type:Essay

Subject Area:Geology

Document 1

REAL ESTATE AND MORTGAGES AS CAUSATIVES OF GLOBAL FINANCIAL CRISIS Introduction A study on the impact of real estate bubble and mortgages in relation to the global financial crisis is an item that has over time elicited mixed reactions but with some taste of consensus that they were causative to the crisis. After the Great Depression in 1930 that resulted into a devastating economic climate, the Global Financial Crisis of 2008 mirrored the challenges faced in 1930 by the United States economy and the world. The essence of the study is to ascertain the role played by real estate and mortgages to plunge the world into a financial crisis especially the United States economy. The research will yield tremendous progress when it comes to developing a mechanism that identifies substantive data that will guide policy formulation regarding the regulation of financial institutions. The macroeconomic impact of the financial crisis requires the reliance of well thought out research project that will develop objective findings on what might have caused the meltdown. The aim of the paper is to ensure the development of an understanding around the complexities of the global financial crisis and investigate the role played by mortgages and real estate. The structure of the research questions will be intended to deliver an objective outcome that responds to the objectives of the study and add value to scholarly interpretation of the causative factors to guide fiscal and monetary policies formulation. Knowledge of what caused or influenced the global financial crisis enhances the capacity of governments and financial institutions to tackle the ever-changing global economic environment.

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It is important to establish a well-structured inquisition that will offer substantive insight on the best way to put in place a policy model that treasures the significance of regulation to prevent adverse effects of behavioral economics dictated by market forces. Aims and Objectives The consequences of any financial crisis are devastating on the millions of lives that are affected in one way or the other. The objectives of the research are to demonstrate and weigh into the discussion of the impact of real estates and mortgages on the financial crisis. The need to understand how better the issue would have been handled would be obtained from different sources of data and scholarly assertions to deliver better judgment on the events surrounding the issue. Even though the global financial crisis has come with a lot of theories that suggest the reasons behind such an occurrence, it is without a doubt that there was some form of imbalance applied into the macroeconomic system with the rippling effect of a crisis (Mishkin, 2009, 574).

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The study will demonstrate the influence of real estate and mortgages when it came to triggering the global financial crisis. The consistent trend of seeking arbitrage by deregulation has often been a populist move that does not yield any considerable returns. The failures of the systems to look into the different indications of a possible crisis engineered by most financial institutions are regarded as the causative impact that triggered the global financial crisis. Background of the Study and Research Questions The rationale of the study involves the need to deliver the plausibility of real estate and mortgages being the causative factors that led to the global financial crisis. The technological advancement is aimed at improving the way of life and through innovations develops a framework that makes the consumer experience satisfying.

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The changes experienced in the society had far-reaching impacts on the way the lives of people would be handled especially financial governance and growth. The growing trend and irrational behavior among consumers led to the housing and real estate bubble which saw the upsurge of rental values and price charged to different properties. The literature review will seek to develop the scholarly input on the subject together with explaining the relevance of the study for business and society use to structure their strategic plans on a trajectory of success. The project will create an undertaking that identifies the gaps and best fit methodology that offers an in-depth data collection procedure which makes the findings credible for policy formulation. The project will establish findings and a discussion on the outcome of the study to reap from the relevance of the investigation in understanding the relationship between real estate bubble and mortgages as causatives of the global financial crisis.

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Research Methodology and Context The objective of the research is to understand whether real estate and mortgages are causative factors that triggered the global financial crisis. The aim of the project was to develop an understanding of the investigation as to whether the behavior of consumers towards a product in the market develops an attitude that influences their irrational consumption pattern across several market segments. The sources of evidence for the study get information from the interview process whereby questions will feature important aspects of the global financial crisis. Moreover, the reasons as to why consumers are informed and cherish the contemporary market compared to traditional models come handy to the research regarding the delivery and access of information on the impact to the consumer experience. The decision to take on a convenient sampling approach will be significant since the model allowed the study to obtain both the basic data and trends on the subject under research rather than reliance on a randomized sampling.

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Convenient sampling is easy and less costly in comparison to probability techniques due to the efficiency and time-saving. The interviewing undertaking will be a very efficient source of information in the sense that it provides the respondent with an opportunity to reflect and provide a one on one account of the experiences together with their thoughts to develop a perspective on the research objective (Williams, 2015, 14). The analysis will take an in-depth organization of the collected information to develop a structure that makes it meaningful in identifying recommendations about the subject under study. Data analysis is often a continuous exercise from the fieldwork through to the completion of data collection exercise. The essence of the process is to equally obtain the substantive information about the input by the respondents at the ground since it will be a one on one engagement with participants exposed to different experiences.

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The data will be put to a process of review at the field work as an exercise to uphold the standards of accuracy and credibility giving chance to the researcher to seek clarification on contentious proclamations in the interview process. The data collected will be analyzed through a thematic technique that enables the researcher sort the evidence adduced during the interviews with a view to establish common assertions and identify the different revelations. and Cramer, D.  Quantitative data analysis with IBM SPSS 17, 18 & 19: A guide for social scientists. Routledge. Claessens, S. and Kodres, M. Singleton, R. A. Singleton, R. and Straits, B. C. S. Is monetary policy effective during financial crises?.  American Economic Review, 99(2), pp. Ravier, A. and Lewin, P.

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Document 2

As such, in understanding the various financial crises that have occurred in the past, more specifically the recent one in 2007-2008, one should always have a geographical as well as some historical knowledge to bear. The global financial crisis is an opportunity to study the causes as well as methods that would lead to an aversion to these situations in future. The paper will mainly look at the issue geographies concerned with the credit crunch and the crisis of mortgages. The paper will focus on the different countries, cities as well as financial centers in an effort to get deeper knowledge of the role of mortgages and real estates in setting off the global financial crisis. In many parts of the globe, Investors had made some investments on the residential mortgages that have backed securities but later, have seen their values drop. Faltering economies, the housing bubbles as well as regulation have resulted in shaping the geography inherent to the financial crisis that rocked parts of the U. S. On the other hand, the problem of subprime and the issue of predatory lending have caused the earners of low-incomes and the community of the minority in various parts of the world to be affected more than the rest. As a result, it leads to a concentration that is observable in certain cities as well as neighborhoods. Looking at this on the international level, some financial centers such as Asia as well as Europe have felt some level of consequences to their long-term as well as their political climates.

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Although humans can be said to be rational, in this system, humans cannot be said to necessarily rational. Besides the stock markets, hedge funds, mortgages, auctions as well as the entire financial market, they are mainly conditioned by the specific actions or decisions that the humans make on these aspects of the financial system. Central to these decisions or actions is information. Hence, depending upon on too little knowledge can be said to be ignorant, while having too much information without sharing it can be said to be a form of informational cascades. On the other hand, using this information selectively in the process of making decisions may lead to polarization. The main reason for this is that most of the lenders are usually national, who want to strive for the same available credit in the world’s perspective.

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Before the 1980s global financial crisis, lenders usually granted their loans according to the savings. It can be said that the savings, as well as the loans, were mainly made in their local markets. The main concern raised was whether the jousting markets in their local markets would bust. Connecting the various local markets in the vicinity was seen as the best method of averting these risks. Such was not only witnessed because many of the people that had the mortgages that were given to them without some sort of down payment, but was also contributed by the fact that many of home mortgages that were backed by securities were at this point, sold with the main intention of making the highest return. The anticipated high returns were partially based on the interest rates that were high at the time and not only the value of the residential homes and also partially based on assumptions.

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Such meant that the values of the home mortgages that were backed by securities were exaggerated. It meant that the risks were underplayed, and the returns got overvalued. Securitization was already in the U. The result was the formation of a series of an increase in the appetite of the home mortgages that were backed by the securities. The crisis in the savings and loans institutes led to a series of events. Furthermore, the securitization as well as the entry of the lenders that were non-banks, coupled by the increase in the demand for the investments that were low risks, contributed a lot in shaping the globalization of the market of mortgages (Dymski, 1999, p. Predatory Lending Foreclosures do not necessarily represent a crisis but also by the defaults in the mortgages given.

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These are majorly the symptoms of the advent of such a crisis. Most of these subprimes, as well as the predatory or enticing loans, are usually given to those who are required to refinance their loans and mortgages or as a form of a second mortgage. These loans do not at all enable the loaned people to get homeownership, especially those from the low income or those that are from the minority communities. These are the people who live houses that have declining house values (Hernandez, 2009, p. The situation is mainly evidenced by the way the African Americans can receive about twice as much level of the loans that are high-priced than the white’s loans (Schloemer et al. p. To a large extent, the form of geographical, financial exclusion is being reproduced by the form such as geographical predatory lending as well as the act overinclusion.

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Therefore, the acts of predatory lending in these areas have transformed them into some form of capital extraction regions (Wyly et al. p. Those who are practicing predatory lending are mainly making profits by the act of stripping wealth as well as equity from the homeowners. These homeowners can be said to channel wealth in the regions or countries that can be said to be undeserving of the loans; which is mainly done through the disguise of ‘loans for the high-cost refinance’ (Taylor et al. Such slowly leads to the advent of a financial crisis as the spillover effects affect major parts of the neighboring communities as well as slowly finding its way on the international level. Conclusion As seen from the paper, the financial disaster is not only local but can spread to a global scale.

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While the impacts of the financial crisis may be global, their extent varies from continents as well as individual countries. The faltering economy, the housing bubbles as well as regulation all have helped in shaping the politics and regions affected across the world. The cases of predatory lending as well as foreclosures have highly influenced the countries as well as communities that can be said to be low-income earners than others in many parts of the world. Brevoort K. P. and Canner G. B. The 2006 HMDA data Federal Reserve Bulletin 93 73–109. San Francisco, CA, p. Dymski G A. The bank merger wave: the economic causes and social consequences of financial consolidation Sharpe, Armonk, NY, p. Goldstein I. The economic consequences of predatory lending: a Philadelphia case study in Squires G D ed Why the poor pay more.

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Lardner J (2008). Beyond the mortgage meltdown: addressing the current crisis, avoiding a future catastrophe Demos, Washington DC, p. Leger, L. and Leone, V. Changes in the risk structure of stock return: Consumer Confidence and the dotcom bubble. Losing ground: foreclosures in the subprime market and their cost to homeowners Center for Responsible Lending, Washington DC, p. Smith G. Foreclosures in the Chicago region continue to grow at an alarming rate Woodstock Institute, Chicago, p. Taylor J, Silver J. and Berenbaum D.

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