Financial Institutions Of The Housing Crisis Essay

US Financial Institutions Contributions to the Housing Crash Previously stated, the federal funds rate was cut to as low as 1% during the early 2000’s. Not only did this turn investors away from investing in treasury bonds, but it also cheapened the cost of borrowing money for banks. This spurred action on behalf of financial institutions to offer investments connected to the continually increasing, and seemingly risk-free, housing market. Due to a combination of greed and ignorance on behalf of financial institutions and credit rating agencies, the proverbial housing bubble increased until it finally reached its peak in 2006, and then began to burst at the end of that year and on into 2007. What exacerbated the decline to such a high degree was the strong connectivity of the financial institutions through their complex transactions that related to mortgages. The main factors that were involved in the impending crash were the increased offering of subprime mortgage loans and collateralized debt obligations, or CDOs. Critically an alyzing the effects of these products will aid in the conversation of financial institutions role in sparking The Great Recession. Securitized mortgages, also known as mortgage-backed securities, is not a twenty-first century concept. Since the 1980s, securitized mortgages have transformed the financial sector â€Å"By transforming illiquid [mortgages] into tradable securities, [which] has helped channel cash flow to borrowers andShow MoreRelatedThe Global Financial Crisis Of 2007-20081123 Words   |  5 PagesThe Global Financial Crisis of 2007-2008 is the worst financial crisis since the 1930’s The Great Depression (Reuters, 2009). Even if bailouts of banks by national governments prevented the collapse of major financial institutions, worldwide stock markets continued to drop. 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