The 2008 global financial crisis

   As I mentioned in my previous blog, leveraging is a common practice for investment banks, but excessive leverage combined with other factors can lead to disaster. From the figure , we can clearly see that the banking industry and the whole market were too high during the financial crisis in 2008, which was also one of the factors that triggered the financial crisis this year. Source: Wikipedia    One view is that after 2000, when interest rates were low, the capital was abundant, but fixed yields were low, investors used borrowed money to boost returns, and deregulation (see chart) increased demand for borrowing, allowing banks to leverage up to attract more investors. At the same time, excessive leverage magnified the effects of the anti-property downturn and deleveraging led to a tightening of bank credit markets. Source:  CARMASSI, J., et al. (2009). "The Global Financial Crisis: Causes and Cures*." JCMS: Journal of Common Market Studies 47 (5): 977-996.     Some ar

   In my last blog post, I mentioned that the deregulation adopted by the U.S. Congress in the late 1990s contributed to the financial crisis. I'm going to focus here on the U.S. market and government. Sources: CARPE DIEM: Bank Business Loan Charge-Off Rates Returning to 2007 Levels, Bank Failures Lowest Since 2008 (mjperry.blogspot.com)   According to Barry Eichengreen , the deregulation of financial markets was the root cause of the financial crisis. Excessive deregulation by the securities and exchange commission (SEC) in the United States contributed to the liquidity crisis in global markets in 2008. In 2004, the SEC adopted the Joint Regulated Entity (CSE) program, which allowed many of America's largest investment banks to join the program to evade the SEC's traditional net capital rules and impose greater leverage ratios. But the scheme is a "co-product" of Europe's f inancial group directive . During the financial crisis, the five major investment ba

   In my last blog, I briefly covered the background of the financial crisis of 2008. However, there were many factors contributing to the financial crisis. In this blog, I will continue to talk about one of the causes of the financial crisis - subprime mortgages.   The origins of the subprime mortgage boom were attributed to the increased demand for private-label mortgages and the increase in securities backed by domestic and foreign investors, which also led to a sharp increase in the share of subprime mortgages, from 8% in 2001 to 20% in 2006 , and the share of the securitised subprime mortgage market, from 54% in 2001 to 75% in 2006. Sources: Wikipedia    As a result, the quality of the subprime mortgage market deteriorated dramatically, collapsing around 2007 as market risk increased while markups on mortgages declined over time.    On the other hand,  Subprime mortgages  are primarily characterised by delinquencies and foreclosures after only a few months. The main way the bank