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Hi, need to submit a 2500 words paper on the topic The Current Credit Crunch. However, these interventions failed to solve the original problems that were entrenched in the unfettered operations of th
Hi, need to submit a 2500 words paper on the topic The Current Credit Crunch. However, these interventions failed to solve the original problems that were entrenched in the unfettered operations of the global financial system and its connections with the global economy (Fang Z. 2005L: 26-31).
The Federal Reserve of the United States failed to provide reserves to banks that had declining deposits. This led to an extension of the banking crisis into a major problem internationally. The financial crisis in the United States began back in 2007. Early in the year, there happened to be an excess of residential houses for rental purposes in the United States. This led to a drop in their prices. The time for loan repayment by the loaned to the respective banks was due and they had to start submitting their monthly installments. This came at a time when rental prices had come down, with many customers unable to reinstate their mortgage. This caused banks to face a difficult time after customers failed to repay their loans. The expectations of house owners dwindled, and many of them had to turn to other means of earning income as the houses were unable to fetch anything substantial as anticipated. There was a rise in the number of discarded mortgages which were viewed by customers as an additional burden, for the fact that they cost monthly payments that were higher than the net worth of the houses.
Many banks suffer because of the Credit Default Swaps have unreal values, while the amount of claims owed to a great extent surpasses the number of bonds. The situation of the banks is not at its best. Moreover, the use of accounting for fair value is problematic. Financial institutions are required to ensure that their asset value is measured against the existing market prices. The problem presented by this measurement is that the price can be more than the value of the presumed asset especially when the prices of buyers are extremely low. In such a case the institutions become troubled. Some banks have also suffered most due to the credit crunch due to .the risk of dealing with an affected partner in the banking system.
