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Make some revisions on formatting of a term paper. Please read the requirement on Syllabus. There is a requirement for term paper1. Please read all the requirement about the format carefully, make some revisions on everything you find is different from the requirement(like you need to put the proposal on the first paper of the paper). Please note you only need to makes revisions on the format. Thank you!

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Department of Economics Professor Hwan-sik Choi Binghamton University Spring 2018 Risk Management and Insurance ECON 439 Prerequisite: Grades of C or better in ECON 360; also grade of C or better in college level statistics (A- required from 2-year school). This course provides basic tools to analyze and manage risk. The focus is given to identification and measurement of risk, insurance, insurance regulation, pricing, insurance demand theory, loss control, as well as personal insurance issues. ED Course Information1 : Instructor: Prof. Hwan-sik Choi (hwansik@binghamton.edu, Office Hours: TBA, LT903). T Classroom/time: H 2:20-3:20pm, M/W/F, SW 214. IG Course Web Site: http://mycourses.binghamton.edu/ PY Textbooks (optional): R TA: Huayan Geng (hgeng1@binghamton.edu, Office Hours: M 3:30-5:35, W 5:05-6:00, LT1010) Scott Harrington and Gregory Niehaus, Risk Management & Insurance 2e. Irwin, McGraw Hill, C O 2004. Grading: grades are on the curve. Your final grade will be determined by the overall score distribution. 1. Attendance (30 points). In addition to attendance credit, you will get extra credits for class participation, homework, and in-class activities. If you miss more than 25% of attendance checks that will occur at random times during classes, you will be penalized by one full letter grade. If you miss more than 50% of attendance checks, you will be penalized by two full letter grades. If you miss more than 75% of attendance checks, you will receive the failing grade. If you miss a class for a university-approved reason, you must submit a proof within 2 days of the missing class. 1 My lectures and course materials, including this syllabus, slides, power point presentations, tests, outlines, and similar materials, are protected by copyright. I am the exclusive owner of copyright in those materials I create. You may take notes and make copies of course materials for your own use. You may not and may not allow others to reproduce or distribute this syllabus, slides, lecture notes and course materials publicly whether or not a fee is charged without my express written consent. 1 If there is a reason that you could not submit it within 2 days, you must submit a proof, within 7 days after the missing class, that you could not submit it within 2 days as well as a proof of a university-approved reason. All attendance checks will be final after 7 days of each attendance check. 2. Seven quizzes (70 points): There will be 9 quizzes (10 points for each) and the best 7 scores will be counted. There will be no make-up. 3. Two midterms (50+50 points): No makeup examinations will be given without a formal approval from the university. To report absence, contact Division of Student Affairs. 4. Two term papers (50+50 points): You will submit a proposal and a final report for each term paper. Format - Handwritten proposals/reports are not acceptable. Use 11pts font/1.5 line ED spacing. If you use MS Word, use the Cambria font. Do not include irrelevant pictures to decorate the paper. T IMPORTANT: You must cite all references properly in the main text and attach the list H of references. Follow the APA citation format. (http://www.binghamton.edu/libraries/re- IG search/documents/apa.pdf ) (a) Term paper 1: Two people can work together for one paper. You will write a short R guide book or a reference on a topic related to one of the areas shown below. It is PY also acceptable if the paper is written in the encyclopedia or wikipedia article style. Slight modifications of the given topics are allowed. If you have another specific topic C O you want, you need to get an approval for the topic from the instructor at least 2 weeks before the proposal deadline. If the report is very good, you will have a chance to give a presentation in class for extra credits. Proposal: You should submit a one-page proposal giving the list of things you will cover in the topic of your choice from the list below. Please find the attached example of the proposal style. It should look like the table of contents of textbooks. Final report: The proposal will be the cover page of the final report. Put section titles in each section following the proposal. Max 15 pages (or 30 pages max if it is a co-work) including tables and figures. The paper is evaluated by the usefulness of the topic to your classmates and the depth of the material. • History of large insurance companies. • Personal taxation (history and current issues). • Financial system, roles of financial markets and institutions such as FRB, OCC, FDIC, etc. • Financial crisis. 2 • Libor scandal, tax haven, money laudering, and other issues in the modern financial system. • Biography of an important person in the financial history of US. • Steps on buying a new home. • Secondary mortgage market or Mortgage 101. • How to estimate the value of life? • Book review of “The Signal and the Noise: Why Most Predictions Fail – But Some Don’t” by Nate Silver (check also NY Times FiveThirtyEight Blog). (b) Term paper 2: You will create an imaginary person (or future yourself), and you will work as a personal financial counselor for the person. The final paper will be a professional-quality brochure to your client. You must use tables and figures effectively to show supporting evidence (data) of your recommendations. Co-work is not ED allowed. Proposal: You should submit a two-page proposal. On the first page, put the title, T name, email address, then describe the profile of the fictional person you created in a H table format. On the second page, state the financial problems that you are helping IG with using tables and bullet points to present them clearly. You must list at least 3 problems to solve. Examples are personal/corporate tax problems, real estate, small R business financing, auto insurance, home owners/renters insurance, life insurance, re- PY tirement planning, health insurance, and annuity, etc. State each problem in detail in a table format relating it with the person’s situation. C O Final report: The 2-page proposal will be the cover page of the final report. Max 15 pages including tables, figures, and references. Write a full report for the person for the various financial needs you described in the proposal. For each financial problem, your report must include (1) a table that describes the details of possible solutions, (2) a table to compare several solutions for each financial problem, and (3) supporting arguments with tables or graphs for the best solution you chose. It must be personalized advise rather than a general guide. The report should be based on associated data and actual quotes from real companies wherever possible using the exact characteristics of the client. It must clearly show the estimated monetary benefit of the recommended solution over the other options. This may require you to do some research into likely career and life paths of the fictional character and related financial earnings and risk. The evaluation will assess completeness of data, reasonableness of recommendations, effectiveness of presentation, and professionalism of the final document. You may not use financial planning software packages or commercially-marketed planning software for your report. It needs to be your own unique document. Submitting a report using a commercial product will render the 3 project invalid. Course Policies and Expectations You are expected to abide by the University’s anti-discrimination and academic honesty policies. You are expected to behave in class in a way which is respectful of other participants, including the Instructor. This includes making sure your cell phones are turned off, not using laptop computers for purposes not related to the class, and not talking other than to make contributions to the class. I reserve the right to reject you from class after one warning. There will be an honor code in effect for the class. You will refrain from cheating on any quiz, ED exam, attendance, or the project, and will do your best to ensure nobody cheats from you. Use of calculators without explicit approval during any quiz or exam will be considered as cheating. T If any irregularities are detected, students will receive zero for that assignment and the matter H will be referred to the Dean of Students. You will receive the failing grade if there is academic IG dishonesty or any cheating related to the credit in the course. R No homework, papers or any material past due will be accepted. You have one week to report PY and correct any errors in grades after each score is posted. After one week, the grades will be final. If you miss a class for a university-approved reason, you must provide the supporting documentation within 2 days after missing the class. After 2 days, the attendance grade will C O be final. If there is a reason that you could not provide the supporting documentation within 2 days, you must provide within 7 days after missing the class the supporting documentation and the proof that you could not submit it within 2 days. The attendance grade cannot be changed after 7 days of the missing class. In addition to the scheduled meeting times, students are expected to do at least 9.5 hours of course-related work outside of class each week during the semester. This includes time spent completing assigned readings, studying for tests and examinations, preparing written assignments, and other course-related tasks. Academic Integrity Statement At the core of a university education is mutual integrity and trust. Binghamton’s Student Academic Honesty Code, adopted by the Faculty Senate in 2002, establishes guidelines for 4 academic integrity on our campus. Additional information concerning Academic Integrity may be found in the online brochure, from the Office of the Provost. Students in this course are expected to observe the Student Academic Honesty Code and should make sure they become familiar with its provisions. Violations of the code, for example, cheating on exams, will be C O PY R IG H T ED prosecuted as specified in the Code. 5 Put the Title of the Term Paper Here (the proposal must be one-page) Put your name here (email address here) 1. Introduction (change this title to what you want) 2. A section name you want (a) (a sub-section title) (b) (a sub-section title) ED 3. Another section if you want (a) (More subsections if you want) H T 4. Conclusion (rename this to what you want) R IG A guide for the term paper 2 PY The goal of the project is the preparation of an Insurance Needs Assessment and Plan for yourself. The plan will comprise of a report on perceived future needs for managing risks such C O as automobile, homeowners, and life insurance, or retirement planning. You may also review options for health-risk management. Project Phase 1: Develop a profile of risk management needs. This will require that you make predictions regarding how your future career and lifestyle might develop, and prepare a related risk management needs assessment. The needs assessment should be shown on your proposal. Project Phase 2: Develop a plan for yourself recommending the kinds and amounts of insurance coverage or risk management methods, and justify your recommendations. 6 Tentative Course Outline 1. Chap 1 2. Chap 2: Quiz (1) - 1/26 3. Chap 3: Quiz (2) - 2/2 4. Chap 4: Quiz (3) and term paper (1) proposal due - 2/9 5. Chap 5: Midterm (1) - 2/16 6. Chap 5: Term paper (2) proposal due - 2/23 ED 7. Chap 6: Quiz (4) - 3/2 H 9. Chap 8: Quiz (6) and term paper (1) due - 3/23 IG 10. Chap 9: Midterm (2) - 3/28 R 11. Spring Break (3/30-4/8) 13. Chap 11: Quiz (8) - 4/20 PY 12. Chap 10: Quiz (7) - 4/13 T 8. Chap 7: Quiz (5) - 3/16 C O 14. Chap 12-13: Quiz (9) - 4/30 15. Student presentations. Term paper (2) due - 5/7 7 Running Head: RESEARCH PAPER 1 RESEARCH PAPER Financial Crisis: An Analysis of its Causes and the Aftermath Name: Institution: Course: Instructor: Date: RESEARCH PAPER 2 Table of content 1. Introduction………………………………………………………………………………3 2. Literature review………………………………………………………………………….4 3. Theories…………………………………………………………………………………..6 3.1 Marxist theory………………………………………………………………………..6 3.2Minsky’s theory……………………………………………………………………….7 3.3Conceptual framework………………………………………………………………..8 3.4Research design……………………………………………………………………….9 4. Results………………………………………….………………………………………….10 4.1 Causes…………...……………………………………………………………………10 4.2 Brief history of the US government policy……………………………………………10 4.3 Housing bubble……………………………………………………………………..…10 4.4 Low-interest rates……………………………………………………………………...11 4.5 Subprime………………………………………………………………………………11 4.6 Speculation……………………………………………………………………………12 4.7 Deregulation…………………………………………………………………………...13 5. Effects…………………………………………………………………………………...…14 6. The way forward ………………………………. ………. ……………………………......17 7. Conclusion ………………………………………………………………………...…….…18 8. Reference ........................................................................................................................…...19 RESEARCH PAPER 3 1. Introduction Ever since the great depression that took place in the 90s, America has never experienced such an adverse moment until in 2008 when there was a financial crisis. Individuals, companies, organizations of America were adversely affected and this spread through to other countries and the world. It resulted in a great recession, casting a shadow on the economic fortunes of many countries. These experiences made people ask questions as to why and how they were happening; they wanted to know the causes for they knew vividly that such global financial events must have causes that were identifiable (Allen & Gale, 2009). These include causes such as high unemployment figures, loss of savings and retirement funds, stranded economic growth, large government deficit and debts amongst many others. The crisis came as a shock for many Americans for it was unexpected. What started as a mere small thing of US house market turbulence blew out into a full-blown recession. There is a known proverb that says that when America catches a cold the world follows suit and this is what happened during the financial crisis. As a result, it brought with it negative effects which we shall discuss broadly in the chapters that follow. The US financial markets became volatile and there was fall-out in the investor markets. People had no confidence in investing in certain business such as technology and innovation. There were tremendous effects including unemployment and increase in crime rates. There was a big bubble burst during that time and shrinking government revenue. Much is talked about that time and this paper tries to unfold the causes and the aftermath events that took place in 2008 (Batten & Szilagyi, 2011). 2. Literature review This chapter reviews books, journals, articles, talks of previous information about the causes and effects of the 2008 financial crisis. It looks into literary materials about this topic. It RESEARCH PAPER 4 discusses the events before the crisis that triggered its existence. Up to now, there has been a good documentation of the global financial crisis and nine years down the line its effects are still lingering on and visible. Understanding of these financial crises is vital for individuals to design a mechanism to detect its oncoming and provide solutions or be able to prevent it from happening. This paper serves to fill a gap where there is no comprehensive knowledge and information about the causes of these crises. Financial crises are a normal phenomenon (Reinhart and Rogoff 2008, 2009, 2014). Even though we are all familiar with the subject of the financial crisis, the 2008 crisis was the worst and it is regarded as the great recession. The crisis put a threat to the financial market globally causing them to collapse, decline in stock prices due to the bailout of large uninsured companies, low investment (Brunnermeier (2009). According to Atkinson, Luttrell, and Rosenblum (2013), they estimated 40% to 60% of the output to be total cost America spent on the crisis. Due to its wide range of estimation, it is uncertain to tell whether the country will return to normalcy due to inflation. Lol, 2012 asserts that there is no a clear agreement on the origin of the financial crisis of 2008. I in this study, we look into the factors that could have contributed to it. Factors such as US monetary policies and global micro-economics made it possible for financial institutions to enjoy sustained growth and profitability for a long time and this increased how they perceived risk management Thakor 2015. This probably increased nonBayesian bullishness, thereby increasing innovation (Gennaioli, Shleifer, and Vishny 2015. For Boot 2014, information technology triggered financial innovation, marketing all kinds of things held as securities. It also saw the expansion of mortgage market and enabled its intertwining with the banking system. Consequently, the financial industry experienced high risks due to RESEARCH PAPER 5 innovative securities, there were unexpected defaults that made securities to lack favor in the eyes of the financiers resulting in a crisis (Gennaioli, Shleifer, and Vishny 2012). The immediate signs of the calamity were in the structure of bank depositors and investors withdrawing their cash and in the case of security borrowing, individuals had to pay huge collateral. The government and the US regulators interpreted this as a crisis in the marketwide liquidity. To stanch the crisis, the government regulatory team took a step to expand a variety of institutions’ liquidity facilities. According to Roberts (2009) and Heng (2010), housing regulation inefficiencies and excessive risks undertaken by the US financial institutions provided room for the development of the crisis. Heng, 2010 writes that there was a rapid decline in the prices of homes due to financial institutions giving individuals who lacked credit history to own homes. This process is known as house bubble and it was key in the precipitation of the financial crisis. Besides these inefficiencies with the housing sector and excessive risk-taking, Sobel (2012) provides additional factors such as inadequate interest rate policy formulation and the US setting up policies that helped to suppress inflation. He says that these two factors created an environment for crisis development. Tan, 2010 states his views that globalization provides an enabling causal factor of global financial crisis although the topic is discussed broadly by Samson and Daft (2012). According to them, globalization is divided into four stages and in each of the four processes; there are managerial and cultural assumptions. The four stages are global, domestic, international, and multinational. Despite linking financial crisis to globalization, Tan, 2010 does not give a concrete example of the process. He would have been more precise by giving an explanation of how the two are related. RESEARCH PAPER 6 Rasmus (2008) discusses that the financial calamity resulted in the fall of the economy of the US and the world. The process led to increases in income inequality, unemployment, the collapse of postwar healthcare and retirement systems, and reduction of US dollar in markets internationally, and the demise of its labor union. Not only has this problem persisted in the US, but also across Europe and Asia where they saw crashing of their stock exchange, there were also losses in London, Frankfurt, and Paris. The crisis did not only affect the capitalist market but the social market as well an example provided is Russia (Erkkilä, 2008). 2.1 Theoretical framework Due to the prolonged financial crisis, scientists became more interested in studying the underlying issue behind it. They were curious in exploring the economy world and try to find solutions for the problems arising in the financial sector. From different angles and points, these scientists established different theories with the purpose of attaining equilibrium in the market demand and supply to minimize the financial risks. For this framework, we shall study Hyman Minsky and Karl Max. 2.1.1 Marxist Theory Karl Max focused on developing an economic theory that whose aim was to understand the idea of materialism and individuals wake to centralize profits. He views that most companies’ value profits more than their employees (Batten & Szilagyi, 2011). They in most cases pay their workers fewer salaries so that huge sum goes to the profits for the purposes of investment. They do not understand the long-run effects of poorly paying their employees. In the long run, individuals will be unable to buy and pay for the products because of low pay hence they will suffer losses. That moment when they will think of expansion, the market prices will have fallen greatly. This theory is only valid where comparisons are made between employed RESEARCH PAPER 7 people and the companies, government issues taxes to the population, and also where a huge sum of money is needed to start big businesses such as airline, transportation, and military. 2.1.2 Minsky’s theory He came up with an economic school of thought known as ‘post-Keynesian’. He concerned himself with the domestic market expanding into a universal one, how steadiness was disturbed by unusual happenings, debt inflation and ways to deflate it, and a movement towards monetary disaster. According to him, danger starts to alter the moment there are growth and development, leading to overconfidence that heightens the balance. Also, peoples assumptions grow and there is seen an increase in the prices of monetary assets. There is also speculation in the financial sector, leading to a financial crisis path. A firm can follow three finances; hedge, speculative, and Ponzi (Batten & Szilagyi, 2011). In hedge finance, taking into considerations the significance and principle of mortgages, companies should ensure profits meet up with the economic responsibilities. Revenues are meant to cover the interest cost without touching on the principle costs hence the only way an organization can evolve is when it depends on liabilities. This is the case for speculative finance. For Ponzi finance, the company can only cover liabilities by borrowing money. It is the most fragile and risky finance because the flow of income does not cover principal or interest costs. The solution here is that the market value should be increased to manage principle and interest costs. RESEARCH PAPER 8 2.3 Conceptual framework For this study, below is a thought-out conceptual framework model that explains the global effects of the financial crisis (Berlatsky, 2010). Fig 2.3 showing the conceptual framework Universal financial crisis Effect of infectivity Financial institutions The Monetary policy of the central bank Subprime mortgages in the US Bailout packages 2.4 Research design For this research, we found the explanatory research design very useful for our undertaking. We used this design to explain our topic which is the causes and effects of the financial crisis that took place in 2008. It is important to have an insight of what we are going to talk about before the study. For this research, we focused on details, reasons, and explanations. For the purposes of explanation, we employed content analysis where we reviewed all kinds of previous literature that paved way for the success of this study (Chen, 2015). We were able to use information from books, magazines, conferences, blogs, websites of Central Banks, and discussions about the financial crisis. RESEARCH PAPER 9 3.0 Results 3.0 Causes of the financial crisis For one to comprehend fully what led to the 2008 financial crisis, one must understand the history of US. It is well known that that government policy, mortgage, and real estate markets of US were the major underlying drivers of the problem (Cline & Wolff, 2012). Even so, when looking into the US history, one can note that government deregulation and people’s greed towards money especially investors and Wall Street bankers played a major role in the crisis occurrence. 3.1 A brief history of US government policy The United States government had an interest in reintroducing new housing grounds and domestic economies immediately after the Second World War. They managed to achieve this mission by introducing a new lending approach borrowed from England known as a mortgage. For this system, in case one borrowed money from someone or an institution, the lender would hold their property as a security for the loan given (Dolezalek, 2012). If for some reasons there happens to be a failure of repayment on the part of the borrower, then the property becomes the lender’s possession. It also gives one an opportunity to borrow finances from a banking institution to put up a house. Mortgage loans are characterized by private insurance, income verification, and a 4-20% mortgage down payment. But this system was only limited to rich people and many ordinary citizens were left out of that particular dream. So by 1992, a system that included the minority was introduced to give them a chance to own a home. A subprime market was created where there was the relaxation of the down payment. Under the leadership of President George Bush, interest rates were lowered to almost zero percent by the National Bank of America with the aim to help the middle-class Americans RESEARCH PAPER 10 (Cline & Wolff, 2012). There was a significant change following these changes and the demand for homeownership increased and the prices house prices kept on rising. With the inelastic supply of houses, it became difficult to build new homes as it requires huge lands and investments and so the home prices rose steadily. With low-interest rates, the US investors and banks saw an opportunity and borrowed money to create mortgages. 3.2 The housing bubble To trade mortgages, the US financial sector invented a new market with the aim of gaining profits from the sale of these mortgages, not only to the Americans but also to other parts of the world. Investors and banks invested largely in mortgage-based securities also called MBS because the prices of the housing market were low and also there was the issue of default rates being low due to high underwriting standards for MBS. Given the high demand for the new market financial products, banks were not able to stimulate their demand. As a result, they were able to reach the maximum point of mortgage prime takers. For the low-income earners and some who had no employment, the US banks created subprime mortgages for them and they were able to get loans at low-interest rates with no down payment (Duryea, Mazza & Regalia, 2009). In 2006, there were a lot of people in the mortgage market for the profits were high hence, a housing boom. Unable to pay the monthly rates, loan buyers became delinquent in paying those loans hence the interest rates increased even more. The banks and investors later took the ownership of these houses and sold them at a profit. The demand for houses started to diminish, while their supply increased and this indicated immediate house price stagnation. This was also an indication of low value for house prices and bursting of the housing bubble. Most RESEARCH PAPER 11 banks and investors took back their house properties before they could lose more money (Duryea, Mazza & Regalia, 2009). 3.3 Low-interest rates From 1999 all the way up to 2004, there were sustained low-interest rates for mortgage ownership and this attracted many buyers. Countries such as China, who constantly purchased US treasury bonds, mirrored its current account deficit. There was also the decision by the Federal agencies to lower the interest rates. Working together with other leading central banks, the Fed ensured that credit flew at interest rates that were low by continuing to drain liquidity into the credit markets. 3.4 Subprime market support Beginning the year 2001, it became easier for low-income earners to receive subprime mortgages that it was for the prime markets (Farkas, 2013). This fell dramatically from 2.7-1.3% by the year 2007.in a testimony provided by the director of FHFA, James Lockhart; he said that brokers Fannie Mae and Freddie Mac failed to examine the risk therein. There is a lot to this RESEARCH PAPER 12 scenario. Some claim that President Bush and Clinton administration together with the Congress put pressure on some enterprise that was government sponsored such as Freddie and Fannie to place themselves in a low standard for the sake of low-income families and enable them to own homes (Franceschetti, 2017). When the housing bubble was near it burst, Freddie and Fannie reflected competition. By 2004, government regulation had restricted Freddie and Fannie to offer lending services and this made 11% of their new mortgages to be less backed by GSEs and they started to increase their subprime mortgage lending in 2005. As a result, mortgage lenders refused to use Freddie and Fannie as middlemen, but rather sold their loans directly to investors and banks who held loans as securities and this process was more profitable (Guichard, 2017). This process was actually a risky one because people opted for more risky loans putting in mind that banks could sell the mortgages held by lenders. As a result, they caused a lot of fraudulent activities in the mortgage industry and it was hard to prevent such lending. 3.5 Speculation A situation where people purchase financial assets with the hopes that there will be price changes in future necessitating increased profits is referred to as speculation. Speculation became more popular due to increase in demand for mortgages. Buyers and sellers of homes had high expectations of continued increased prices of houses and this increased the willingness of home buyers to pay for the expenses. With this in mind, real estate owners began to increase their charges based on the high demand, plus on speculation that there would be continuity of housing prices. With a lot of speculation, it was only an indication of increased prices, providing people with an assurance to buy homes (Guichard, 2017). RESEARCH PAPER 13 By 2002, investors were well aware of the incoming problems because they knew that housing prices had never risen to such an extent. They ignored this information and continued to buy and sell houses at a higher rate. Human beings have a tendency to do something just because the majority is doing it. This was the case with speculation, a process known as herd mentality. By 2007, it was easily noticeable that there was an unprecedented rise in housing prices. By 2008, houses had lost more than 40% of the GDP in their market value translating into a financial fall of $54000for each household. The house prices continued to diminish drastically to a point of sinking until 2012. 3.6 Deregulation Many analysts relate the financial crisis of 2008 with the negligence of regulating agencies including US Treasury, Securities and Exchange Commission, and Federal Reserve. They claim that they shirked off their duty of ensuring moderate risk-taking. The Federal Reserve Chairman, Alan Greenspan, was the one who presided over the subprime boom lending and the housing bubble (Hurd & Rohwedder, 2010). He acknowledged of his negligence when confronted with the issue. Greenspan had the power to regulate how people risked their lending services since he covered the jurisdiction concerning Home Owner Equity Protection Act. Even so, he was not alone in acting. He was simply following market laws relating to finance. What encouraged him was the idea of market discipline and hypothesis. The theory behind it is that people in the finance business were self-regulating and they did not need government imposition to them it meant nothing. By 2000s, finance regulators had a little say in the credit sector with few rules to impose. The self-regulating laws also influenced the leverage requirements to relax in the lead-upcrisis. These leverage ceilings were imposed by Securities and Exchange Commission on certain RESEARCH PAPER 14 banks such as Meryl Lynch, Bear Sterns, and Lehman Brothers to limit their borrowing up to twelve times their net capital. This leverage took place in 2003 and by 2008 all these banks entered bankruptcy. There were also new international guidelines in 2004 that permitted leverages based on the riskiness of a bank’s assets. To keep up with these guidelines, the Federal Reserve decided resolved that large banks should take the responsibility of assessing the relative risk of their assets and not the regulators. This move happened in 2007. With such selfassessment, banks gained more autonomy in the risk regulation. The banks took this ideology as an advantage and started valuing their CDOs and MBSs according to their performance. The prior performance had been positive and they speculated that it will go on and on. Fig 3.1.6 Chain of events leading up to the crisis Deregulation The housing price bubble Growth in leverage and consumption Housing bubble burst Risky lending by banks and investors US Monetary structure Financial innovation Financial crisis Shrinking of liquidity in the shadow banking 4.0 Effects It is obvious that such misfortunes as the financial crisis could bring real effects. Significantly, they included lower credit demand and house demand that eventually led to RESEARCH PAPER 15 reduced spending by consumers. It also came with adverse effects such as higher unemployment and reduction in corporate investment. These effects still hurt up to date and the changes they brought with them would still linger on (Hurd & Rohwedder, 2010). 4.1 A lost decade in housing Consequences for the US citizens and the economy had been severe ever since 2006 when the US housing market began to fall due to the tremendous fall in their prices. People had to leave their homes for sale because they were unable to pay for the expense related to mortgages. Until 2010, the foreclosure of homes had reached six million. After the bubble burst, homeowners faced hardships as well as the building industry because of low demand for houses. The markets offering credit were also affected both by the supply and demand. They saw huge losses as more and more CDOs failed and adjustments had to be made in relation to the property value for owned houses. Federal Reserve took over large mortgage lenders; Freddie and Fannie in 2008 because they had no liquidity and these led to struggle by the investment banks. For example, the bank of the Lehman Brothers faced a terrific fall and as a result, it could not serve their clients and so it filed for bankruptcy while J.P Morgan acquired the bank of Bear Stearns. Problems arose in the banking industry due to insecurity in the stock and credit market. The government took over the largest insurance company, AIG as they saw losses with credit default swaps (Kerlin et al., 2015). 4.2 Reduction in investment and increased unemployment Investors were the most affected during the financial crisis due to the collapse of the housing market. They made huge losses due to defaulting on Mortgage Backed Securities and Collateralized Debt Obligation. Private and smaller institutions also faced the same problems because they had invested money in CDOs with an aim of gaining profit from interest earnings. RESEARCH PAPER 16 For instance, most public employee pension and retirement funds were invested in the CDOs trance, and they almost lost all of the money. Corporate investment fell accompanied by a rise in unemployment due to reduced household consumption and scarcity of credit unavailability. This was a period of great recession, with almost 10% of the workforce losing jobs (Taylor & Clarida, 2014). During this period people were discouraged from trying to enter the job market after the crisis causing stagnation of the labor market. With everything falling down, it was inevitable for employment to exist. 4.3 Global recession With the irresistibility of the financial downtown in the US, it resulted in a contagion. This means that the process would spread from one country to another until it was a global crisis. With the world linked together with close interaction of investors, banks, and companies, it becomes so easy for a contagion effect to take place. The world stock market reacted negatively in 2008. European banks and subsidiary companies closed. Consequently, the government had to rescue banks in Germany because they too had large investments in the US real estate market. Key to remember is that there was a collapse of exports in the US, resulting in low supplies from Japan and China. The Chinese manufactures faced huge losses due to low demand for their products. Many large companies such as Chrysler and GM filed for bankruptcy and the government had to rescue them. But due to that, many people lost the jobs reducing the standard of living (Tong & Wei, 2008). 5.0 Way forward Inequality has become a normal thing in recent years and it is more experienced in the US. With high paying jobs being easy to find and the tremendous growth of banks, it’s easier said that the world is becoming more and more globalized, and economies need to find ways to RESEARCH PAPER 17 prevent another crisis from taking place. Countries need to have a backup plan just in case the process would repeat (Tourani-Rad & Ingley, 2011). To be precise, the labor market and social policies need to find ways to mitigate the crisis by finding ways to bridge the gap between unemployment and economic growth. To formulate the right policies, they need to understand how the labor market adjusts when there is a collapse in the aggregate demand and credit squeeze. This depends upon a country or region. The labor union should center on the following areas; matching the gap between supply and demand, increasing and maintaining labor demand, targeting vulnerable groups, and providing income support. Also, there need to be proper laws regarding credit supply and acquisition. The Federal Reserve needs to put forward regulations that will maintain a balance in the mortgage market economy. This prevents banks from acting on their own setting high standards that are meant for gains only. Regulation will prevent economies from speculating what will happen. The US government should take charge of the regulation activities to help maintain a balance in some type of way. Also, the US society needs to find ways to take charge of the vast financial resources to meet up the real needs of the people (Tong & Wei, 2008). 6.0 Conclusion This study has examined a wide terrain related to the causes and effects of the 2008 financial crisis in the US. At this point summarizing all the key discussion is essential for the reader. The study begins with an introduction that takes us through the key points of the study followed a review of different kinds of literature relating to the topic of study. These reviews provided a gateway in understanding that the 2008 financial crisis wasn’t the first, but there had been other crisis before like the great depression of the 1990s (Tong & Wei, 2008). There are various scholarly articles that touched on the topic that made it easier for this research to be RESEARCH PAPER 18 possible. It was also necessary to look into the historical perspective of the US government policy that may have triggered the events that led to a financial crisis. The paper also stresses a number of causes that might have culminated the start of the financial crisis including the huge housing bubble, greed for money, deregulation, and lowinterest rates. When the government saw that home ownership was only a dream for the prime individuals, it resolved to set up laws through the Federal Reserve to enable low-income earners to access homeownership. The laws included lowering of interest rates and removing the down payment part. This majorly encouraged risky lending and more banks and investors invested in the housing business. As a result, people were unable to pay for the house prices and this resulted in a crisis as banks lost their investment money filing for bankruptcy. The crisis came with adverse effects on the financial institutions and the economy as a whole. There was a reduced number of investors and as a result, unemployment hiked. Due to the events that led to the housing bubble of 2008, banks went bankrupt and investors lost their money, big companies who employed the majority of the people lost the will to continue and as a result, the unemployment rates rose. There was also a global recession because of contagion. This usually happens when the US is affected, the rest of the world follows suit. In summary, it is hard to know who is really accountable for the events that led up to the financial crisis of 2008 because several parties were involved. Even though, it is important to note that several institutions, individuals, and banks played a major role in causing the crisis to take place. They created situations where it cost people’s jobs, homes, and their wealth. RESEARCH PAPER 19 7. References Allen, F., & Gale, D. (2009). Understanding financial crises. Oxford: Oxford University Press. Batten, J., & Szilagyi, P. (2011). The impact of the global financial crisis on emerging financial markets. Bingley, U.K.: Emerald. Berlatsky, N. (2010). The global financial crisis. Detroit, MI: Greenhaven Press/Gale Cengage Learning. Chen, Q. (2015). Financial Crisis. Washington, United States: International Monetary Fund. Cline, W., & Wolff, G. (2012). Resolving the European debt crisis. Washington, D.C.: Peterson Institute for International Economics. Dolezalek, H. (2012). The global financial crisis. Edina, Minn.: ABDO Pub. Duryea, S., Mazza, J., & Regalia, F. (2009). Social and labor market policies for tumultuous times. [Washington, D.C.]: Inter-American Development Bank. Farkas, B. (2013). The Aftermath of the Global Crisis in the European Union. Newcastle upon Tyne: Cambridge Scholars Publishing. Franceschetti, B. (2017). Financial Crises and Earnings Management Behavior. Cham: Springer International Publishing. Guichard, S. (2017). Findings of the recent literature on international capital flows. Paris: OECD Publishing. Hurd, M., & Rohwedder, S. (2010). Effects of the financial crisis and great recession on american households. Cambridge, Mass.: National Bureau of Economic Research. Kerlin, J., Malinowska-Misiąg, E., Smaga, P., Witkowski, B., Nowak, A., & Kozłowska, A. et al. (2015). European Bank Restructuring During the Global Financial Crisis. London: Palgrave Macmillan UK. RESEARCH PAPER 20 Taylor, M., & Clarida, R. (2014). The Global Financial Crisis. Hoboken: Taylor and Francis. Tong, H., & Wei, S. (2008). Real Effects of the Subprime Mortgage Crisis. Cambridge, Mass: National Bureau of Economic Research. Tourani-Rad, A., & Ingley, C. (2011). Handbook on emerging issues in corporate governance. Singapore: World Scientific Pub. Co. Running head: RESEARCH PROPOSAL Research Proposal Financial Crisis: An Analysis of its Causes and the Aftermath Name: Yitongwu Email: ywu113@binghamton.edu 1 RESEARCH PROPOSAL 2 Abstract A financial crisis occurs when people’s demand for money is high than its supply. People thought that the great depression of the 90s was the worst time of all until they experienced a financial crisis in 2008. During that time firms feared to invest in innovative activities as they were uncertain of the return and banks experienced a great depression (Borio & Disyatat, 2011). Times were hard with people losing their jobs, fall of the banking industry, poor housing, and increased crime rates. How did this problem come into existence? This paper looks into the events that led to the 2007-2008 financial crises and its aftermath. Even though it is said that the US mortgage industry is the primary cause of the financial disaster, there is a lot more to the problem than that, and that’s what we will analyze in this study. We will use surveys provided by the different organizations including banks to understand the causes and a regressive analysis to check results of its impact (Laeven, Klingebiel & Kroszner, 2011). Problem The period between 2007 and 2008 was a time when the US economy was on the verge of deterioration. The situation started out in a small segment of the housing Market of US and culminated into a global problem. What provoked this situation? What was the aftermath? To answer these questions, we should perform an empirical research into the possible causes of the economic crisis. As the country continues to recover from the shock of the disaster, it is important to examine its causal effects. Many instances triggered the beginning of the crisis amongst them improper regulation and supervision of financial institutions, credit freeze, bankruptcy, and the US mortgage boom (Muellbauer, 2010). For this paper, we will examine deeply into these causes and its effects. RESEARCH PROPOSAL 3 Research question The financial crisis that brought with it global problems is important for study. For us to understand the process it is necessary to investigate the reasons why it took place and why it took a long time for it to end. Here the question we ask ourselves is this; what prompted the global financial crisis and why did it take so long for it to end? The crisis came with a lot of negative effects such as unemployment, crime, bankruptcy, reduced innovation, and the collapse of financial institutions (Reinhart & Rogoff, 2009). So, it is vital to ask ourselves this question; what were the aftermaths of the events? Methodology For this study, a survey is going to be conducted to find out the financial position before and after the crisis. We will use information available from blogs, newspapers, and books on the financial crisis, websites of central banks, and conferences and discussions about the financial crisis. Also, we will use regression analysis to check the results before, during, and after the crisis. The information collected will be analyzed and examined to get the results. Expected results From the information collected from various sources such as magazines, books, blogs, newspapers, and websites of different central banks will be analyzed to and our decisions will be based on them. I do look forward to finding results that will comprehensively reveal the ideal causes of the financial crisis of 2008 and provide the reasons why it prolonged. I also expect results that reveal the aftermaths of the events. The results should give a consensus of events before, during, and after the financial crisis. The results should be concise such that the reader should get a clear view of what happened from reading the report. RESEARCH PROPOSAL 4 References Borio, C., & Disyatat, P. (2011). Global imbalances and the financial crisis. Basel, Switzerland: Bank for International Settlements, Monetary and Economic Dept. Laeven, L., Klingebiel, D., & Kroszner, R. (2011). Financial crises, financial dependence, and industry growth. Washington, D.C.: World Bank, Financial Sector Strategy and Policy Dept. Muellbauer, J. (2010). Household decisions, credit markets and the macroeconomy. Basel: Bank for International Settlements, Monetary and Economic Department. Reinhart, C., & Rogoff, K. (2009). The aftermath of financial crises. Cambridge, Mass.: National Bureau of Economic Research.
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Surname 1
Financial Crisis: An Analysis of its Causes and the Aftermath
Name:
1. Proposal …………………………………………………………………………… 1
2. Introduction………………………………………………………………………... 4
3. Literature review…………………………………………………………………… 5
4. Theories……………………………………………………………………………. 7
3.1 Marxist theory…………………………………………………………………. 7
3.2Minsky’s theory………………………………………………………………… 8
3.3Conceptual framework…………………………………………………………. 9
3.4Research design………………………………………………………………… 9
4. Results………………………………………….……………………………………. 10
4.1 Causes…………...………………………………………………………………. 10
4.2 Brief history of the US government policy……………………………………… 10
4.3 Housing bubble…………………………………………………………………. 11
4.4 Low-interest rates………………………………………………………………...12
4.5 Subprime………………………………………………………………………… 12
4.6 Speculation………………………………………………………….…………… 13
4.7 Deregulation……………………………………………………………………... 14
5. Effects………………………………………………………………………………... 16
6. The way forward ………………………………. ………. ………………………….. 18
7. Conclusion ………………………………………………………………………...…. 19
8. Reference ....................................................................................................................... 21

Surname 2
Abstract
A financial crisis occurs when people’s demand for money is high than its supply. People
thought that the great depression of the 90s was the worst time of all until they experienced a
financial crisis in 2008. During that time firms feared to invest in innovative activities as they were
uncertain of the return and banks experienced a great depression (Borio & Disyatat, 2011). Times
were hard with people losing their jobs, fall of the banking industry, poor housing, and increased
crime rates. How did this problem come into existence? This paper looks into the events that led
to the 2007-2008 financial crises and its aftermath. Even though it is said that the US mortgage
industry is the primary cause of the financial disaster, there is a lot more to the problem than that,
and that’s what we will analyze in this study. We will use surveys provided by the different
organizations including banks to understand the causes and a regressive analysis to check results
of its impact (Laeven, Klingebiel & Kroszner, 2011).
Problem
The period between 2007 and 2008 was a time when the US economy was on the verge of
deterioration. The situation started out in a small segment of the housing Market of US and
culminated into a global problem. What provoked this situation? What was the aftermath? To
answer these questions, we should perform an empirical research into the possible causes of the
economic crisis. As the country continues to recover from the shock of the disaster, it is important
to examine its causal effects. Many instances triggered the beginning of the crisis amongst them
improper regulation and supervision of financial institutions, credit freeze, bankruptcy, and the US
mortgage boom (Muellbauer, 2010). For this paper, we will examine deeply into these causes and
its effects.

Surname 3
Research question
The financial crisis that brought with it global problems is important for study. For us to
understand the process it is necessary to investigate the reasons why it took place and why it took
a long time for it to end. Here the question we ask ourselves is this; what prompted the global
financial crisis and why did it take so long for it to end? The crisis came with a lot of negative
effects such as unemployment, crime, bankruptcy, reduced innovation, and the collapse of
financial institutions (Reinhart & Rogoff, 2009). So, it is vital to ask ourselves this question; what
were the aftermaths of the events?
Methodology
For this study, a survey is going to be conducted to find out the financial position before
and after the crisis. We will use information available from blogs, newspapers, and books on the
financial crisis, websites of central banks, and conferences and discussions about the financial
crisis. Also, we will use regression analysis to check the results before, during, and after the crisis.
The information collected will be analyzed and examined to get the results.
Expected results
From the information collected from various sources such as magazines, books, blogs,
newspapers, and websites of different central banks will be analyzed to and our decisions will be
based on them. I do look forward to finding results that will comprehensively reveal the ideal
causes of the financial crisis of 2008 and provide the reasons why it prolonged. I also expect results
that reveal the aftermaths of the events. The results should give a consensus of events before,
during, and after the financial crisis. The results should be concise such that the reader should get
a clear view of what happened from reading the report.

Surname 4
1. Introduction
Ever since the great depression that took place in the 90s, America has never experienced
such an adverse moment until in 2008 when there was a financial crisis. Individuals, companies,
organizations of America were adversely affected and this spread through to other countries and
the world. It resulted in a great recession, casting a shadow on the economic fortunes of many
countries. These experiences made people ask questions as to why and how they were happening;
they wanted to know the causes for they knew vividly that such global financial events must have
causes that were identifiable (Allen & Gale, 2009).

These include causes such as high

unemployment figures, loss of savings and retirement funds, stranded economic growth, large
government deficit and debts amongst many others.
The crisis came as a shock for many Americans for it was unexpected. What started as a
mere small thing of US house market turbulence blew out into a full-blown recession. There is a
known proverb that says that when America catches a cold the world follows suit and this is what
happened during the financial crisis. As a result, it brought with it negative effects which we shall
discuss broadly in the chapters that follow. The US financial markets became volatile and there
was fall-out in the investor markets. People had no confidence in investing in certain business such
as technology and innovation. There were tremendous effects including unemployment and
increase in crime rates. There was a big...


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