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2 pages/≈550 words
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Style:
MLA
Subject:
Accounting, Finance, SPSS
Type:
Essay
Language:
English (U.S.)
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Topic:

Economy Crisis Problems

Essay Instructions:

Questions:
Based on all the information you could search and obtain, please show your personal understandings for the following questions regarding the 2008 financial crisis:
(1) What were the problems in our economy during the pre-crisis period, which finally led the entire world into this unprecedented crisis? Could you explain why those problems had such a severe impact to our economy?
(2) Could you please show at least two financial tools that were heavily used by Wall Street before 2008 but finally magnified our losses during the crisis? (For example, CDOs, CDS, and etc.) Please illustrate the basic idea of these tools (how did they work and being traded, what are the entities get involved in these tools, and etc.) and also why these tools lead the market into a severe collapse.
(3) Based on your own understanding, why the initial collapse of US markets finally generates a contagious effect to other countries, that other countries also suffer a lot and experienced severe local market collapses (For example, the post-2008 European sovereign debt crisis).
(4) What are the measures you think would be useful for us (as individuals, firms, local governments, and global organizations respectively) to deal with the financial crisis, and help us forecast the crisis and reduce the cost of it. And why?
Requires:
(1) These two are both open questions, so there is no unique answer for them. Please show your personal understandings on these questions as deep as possible with reasonable explanations. Please be aware that these two are essay questions, not short answer questions. So a simple answer, such as few sentences without a reasoning process or detailed explanations will lead to a low score.
(2) You do not need to rely solely on your textbook for answering these questions. Instead, I encourage you to obtain more information from other resources, such as online materials or asking for suggestions from financial professionals.
(3) Moreover, I need you to show citations of any resources you used in your answers, at the end of each question. There is no unified form of citation, simple website links or strict journal formats are both OK. Why I need the citations is to show our respects to other persons' efforts and contributions.
(4) Duplicated answers will be punished. You can search for open resources does not mean that you can simply copy&paste them. You have to digest the information and answer the questions in your own words. Therefore, if I find some students who submit almost the same or duplicated answers for a question, these students will receive zero for that one. So you are at a very high risk of receiving zero if you just simply copy&paste some answers.

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Requirements 1
Every economy faces recessions and booms. The US economy faced a recession in 2001 that stayed for a short period. It had little impact on the economy but was worth noticing. The economy stayed strong after that, and it faced no severe damage during the terrorist attacks and other accounting scandals. The subprime crisis in 2007 weakened the economy, and it was evident that this crisis had spread well beyond the borders. In March 2007, a significant amount of subprime lenders had already declared bankruptcy and the involvement of the world's central organizations became necessary to cater to the situation (Zhou 207-230). Moreover, other multi-dimensional problems were also seen that had a severe impact on the economy.
The economy suffered tremendously as the housing market was collapsing, which resulted in decreased real estate prices. People had to leave their houses as they were incapable of paying the mortgages and were forced to sell their houses (Reid et al. 469-487). The demand for other properties drastically decreased, and the businesses suffered as well.
Requirements 2
The two primary financial tools that were used by Wall Street in 2008 were the CDS and CDOs. Credit Default Swap (CDS) is a financial tool that enables an investor to exchange or swap his default risk with another investor (TAMAKOSHI). The financial crisis leads to the downfall of companies that traded in swaps. An unregulated market meant that the banks used the swaps compulsively to ensure risk-free complex financial products. The bank started to hold capital to create a risk-averse portfolio leading to the market collapse. The second crucial financial tool used was the Collateralized Debt Obligation (CDO). The smaller and private organizations used to invest in the CDOs to obtain a profit on their earnings (Brealey et al.). Generally, CDOs give a higher percentage of profits than ordinary T-Bills. Since the interest rate declined, financial devastation was seen among the investors that resulted in a severe collapse in the economy.
Requirements 3
The financial crisis in the US harmed other economies as well. Trade and other components of the global market have made many economies linked up, and this me...
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