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The first important point on slide 10 is the failure to penalize the originator for passing the mortgage to the provider. The originator should have cross-checked to ascertain if the borrower met the loan requirements and the loan’s principal quality. The lack of scrutiny led to wrong ratings that led investors to bad decision-making. The second important point is slide 11, where credit rating agencies coached clients on formulating securities to attain higher ratings. The actions of these credit rating agencies contributed to the Global Financial Crisis in 2008 that lead to the Great Recession (Nanto, 2009). They gave a high credit rating on debts later identified as high-risk investments.
The last point on slide 13 is a reminder that a series of events caused the global financial crisis that took place in 2008. Even though credit rating agencies have been blamed, several causative issues include large deficits in global trade resulting from large amounts of cash in leveraged debt (Nanto, 2009). The period was also marked by increasing the cost of commodities and interest rates to fight inflation threats. It is a lesson to investors that high returns accompany high risks. It could have signaled different players to be cautious, but the urge for profits surpassed the need for scrutiny.
I have a question about slide 13. The information provided indicates that the financial crisis was caused by several players regulated by the federal government. The government’s mandate is to protect its citizens by gathering data on the state of the financial system and monitoring it regularly. However, the federal government did none of these acts. Did the United States intentionally let the 2008 financial crisis take place?
Reference
Nanto, D. (2009). The global financial crisis: Analysis and policy implications. Defense Technical Information Center.
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