This research paper will be a study on the Subprime crisis and the effects and the consequences of the subprime crisis. The research paper will deal with the causes of the subprime crisis and the effects of the crisis in the United States and the European Union and the global economy in general. In this paper, I will also discuss the lessons learnt from the crisis and how the crisis would have been avoided. ORGANIZATION OF THE PAPER This research paper is organized into six chapters to present the Subprime crisis, its cause and consequences.
Chapter One: This chapter clearly states the questions the thesis answers as well as the details of the research methods. This chapter also gives a guide to subsequent sections. It states the thesis and the aims of study of this paper. Chapter Two: The cause of the Subprime crisis is identified. This chapter identifies the reasons that caused the crisis in the markets and economy. At the same time, the chapter identifies the key players who facilitated the subprime crisis. Chapter Three: This discusses on the effects and consequences of the whole crisis on the market and the economy of the various sectors within the government.
Chapter Four: This explains on the various effects of the sub prime crisis on the US and European economy Chapter Five: This section provides an overview on the various ways that could have been adopted by the various countries to evade the crisis Chapter Six: This provide the outline of the several lessons that were learnt from the sub prime crisis Conclusion: This section summarizes the findings of this study and states the recommendations that should be followed in order to avoid such a crisis in the future.
Bibliography: This section show the detailed sources of the articles, journals, books and other resources that were used in the findings of this research paper. Appendices: This section shows the tables and figure that were retrieved from different journals and articles and were used in the study of this research paper. I would like to appreciate many individuals who have helped me in the study of this paper by their contributions, suggestions and ideas. I am thankful to the people who have contributed their tremendous efforts towards the success of this research paper.
I am grateful to my promoter for his professional advice, suggestions and support that has helped me in the completion of this paper. I also appreciate my family and friends for their support and contribution towards the completion of this paper. EXECUTIVE SUMMARY This paper is a study on the subprime mortgage credit crisis. The title of this paper is the subprime crisis. The thesis of this paper is that the subprime crisis affected the U. S. and European markets and economy. This paper answers the questions what are the effects and the consequences?
How did it affect the US and European markets and economy? How could this have been avoided? And what can be learned from this? The approach that will be used in this paper is discussing and analyzing information about the subprime crisis while focusing on the how that subprime crisis was created. This paper also tackles the effects and the consequences that the subprime crisis caused on the global economy and the United States and the European markets as well. The paper also discusses the how the crisis would have been avoided and the lessons that the world has learnt from the subprime crisis
The first section of this paper is an introduction that covers the overview of the subprime crisis. The section tries to explain the reason of the study of this paper. This part also states the thesis of the study that is used in the entire discussion of the paper. The aims of the study of the paper are also covered in this chapter. This chapter also shows the details of the research methods that will be used for this study and it also gives a guide to subsequent chapters and sections of this paper. The chapter also identifies the problem statement of the study of this paper and the research objectives of this study.
Lastly, this chapter summarizes the research questions that will be used in the study of this paper. The second section identifies the causes of the subprime crisis. This chapter identifies clearly the major and the minor cause of the subprime crisis in the markets and economy. The major causes that are covered in this chapter include the affordable housing strategy and the regulatory lapses of the subprime loans application process. The other major cause of the subprime crisis is the implementation of the fair value accounting.
The other causes of the subprime crisis include the Seizing of the Inter-Bank, Increase of the Interest Rates, Subprime Mortgages of the CDOs and the CRT instruments and the Short-reset of the Subprime Loans. This chapter also identifies the key players who facilitated in causing the subprime crisis. The major key players of the subprime crisis are the rating agencies, the mortgages brokers and lender, monolines insurers and the ABS trust, the CDO and the CDO squared equity holders. The other key players include the financial institutes, the economy and the central banks.
Then discussed in chapter three are the effects and consequences of the crisis on the various government sectors and firms including the level of losses incurred. The fourth section discusses on the various effects of the sub prime crisis on the US and European economy. These include the instability that the crisis brought in the market by the rising and falling of the commodity prices. The tightening of credit conditions, the rising of the capital within the financial institutions. There is also decline in value of the mortgage-backed securities, and the rise of the major fictions within the US and the European markets.
The markets and the financial institutions became increasingly discriminating with regard to the risks that were posed by large external imbalances. It then goes a head to discuss on the way that could have been adopted by the various countries in order to evade the crisis. The crisis could have been avoided by developing on the affordability that could provide the support for the stabilization of the prizes. Also through the implementation of the credit quality assessment, the inclusion of the correct ratings in the sub prime mortgage market.
There was to be also, the liquidity risk management where the credibility is extended to others in order to retain the liquidity of their own needs and reduce the possibility of losses. The credit and market risk management which involves dealing with various market realities that need to be dealt with in order to overcome the valuation practices and then finally through hedging of the market and credit risks by early active decisions. Discussed in the last section are the several lessons that are learnt from the sub prime crisis.
These are like lowering the rate of discount and reducing the funds that FED charges for the intra-bank transfers as well as the banks realizing the importance of reducing the charges rates on the bank borrowings. Also discussed are the changes that were realized to be ineffective even if they were implemented for a solution. For example the changes in monetary like the interest rate reduction was learnt to be ineffective. Then finally the paper provides a comprehensive conclusion on the effects of the sub prime crisis and the benefits of the remedial measures taken. .