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Economics Essay on The subprime meltdown





This is a four page essay on the subprime meltdown and the following instructions were given for the essay:

Your analysis must include a brief description of subprime loans, and address questions such as how and why the crisis started, where the crisis started from, what was the role of hedge fund in failure of mortgage companies, how this crisis can be prevented in the future, and to what extent world financial markets in general, and Australian financial markets in particular, have been adversely effected (directly or indirectly).

About the Solutions
The first page of the essay is reproduced below. Please purchase the essay if you wish to use any part of it.

Introduction
As described by Browning (2007) a subprime loan is a loan given to those who have weak credit and thus are a greater credit risk. While these loans had been given in the past with higher interest rates, the crisis itself which developed in the American financial markets owes a lot to the speed, the number and the rate at which such loans were given out. The old system of processing loan applications took weeks as loan officers worked on cases, studied the risks, credit histories and all other relevant information to gauge the risk of the investment. The subprime loans were not scrutinised to the same extent and often were not even scrutinised by human eyes at all.

Automated systems allowed people to go online, apply for a housing loan and simply wait for the cheque to come in. Wall Street greedily provided the money for these loans as investors rushed to pick up shares in hedge funds that were supposed to give a high level of return with a high level of risk. The loans that were given out often required no down payments and could also have needed nothing more than interest payments for a year or more before the principal payments would be added to the bill. Effectively, what was considered a niche product only to be given out after careful scrutiny, became a mainstream product for banks and lending institutes (Browning, 2007).

The subprime housing loan market was thus seen as virgin territory where banks needed to make inroads before the competition. They expected to get great returns but their investment risks were greatly underestimated. In fact, in some cases the risks appear to have been ignored while the search for short term profits and sales figures come out as the only important needs of the banks. The situation has taken the American economy to a place where experts are calling it the “worst financial crisis since the Great Depression (Essen, 2008, Pg. 1)”.


Other Details about the Project/Assignment
Subjects: The subprime meltdown
Topic: Economics Essay on The subprime meltdown
Level: College / University
Tags:

Economics Essay, The subprime meltdown, Australia


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Project Details
Subjects: The subprime meltdown
Topic: Economics Essay on The subprime meltdown
Level: College / University
Tags:

Economics Essay, The subprime meltdown, Australia


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