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213106307 Daniel Kahneman coined the term ‘Misconception of chance’ to describe the phenomenon of chance and probability. He focused particularly on how large scale trends tend to dictate human expectation, even when we are dealing with smaller sample sizes. An example which was given in the reading ‘Judgment under Uncertainty’ of heads and tails situation, people respect the succession H – T – H – T – T – H to be more certain than the grouping H – H – H – T – T – T, which doesn't seem random, and furthermore more probable than the arrangement H – H – H – H – T – H, which does not represent the fairness of the coin. Hence, People expect that the basic attributes of the procedure will be will be represented, all around globally and locally in the entire sequence in each of its parts. The aspect majority of us find so difficult to handle about this case is that any pattern of the same length is similarly prone to occur in a random sequence. For instance, the chances of getting 5 tails straight are 0.03125 or simply expressed by 0.5 (the chances of a particular result at each trial) to the power of 5 (number of trials). A similar probability rule applies for getting the particular sequences of H – H – T – H –T or T – H – T – H – T, where each succession is gotten by again taking 0.5 (the chances of a particular result at each trial) to the power of 5 (number of trials) which equals to 0.03125. The probability is valid for sequences, however it infers no connection between the odds of a specific result at ever trial and portrayal of genuine proportion within these short sequences. However it’s still surprising, this is on the grounds that people expect that the single occasion, and odds will be reflected not just in the extent of events as a whole yet additionally in the specific short sequences we experience. But this is not the case; a completely alternating sequence is similarly as uncommon as a sequence with all heads or all tails. Applying Kahneman’s theory to the subprime mortgage crisis shows that three explicit government programs were principally liable for the development of subprime and Alt-A home loans in the U.S. economy somewhere in the range of 1992 and 2008 and for the decrease in contract guaranteeing guidelines that followed. Alt-A and subprime mortgages are the ones usually issued to borrowers with low credit ratings on the grounds that the money lender views the borrower as having a more noteworthy than-normal risk of defaulting on the payment. Home loan candidates are commonly graded from A to F, with A score heading to those with commendable credit, and F score setting off to those with no detectable capacity to repay a loan at all. Prime mortgages go to A and B applicants, though lower-rated applicants to surrender to subprime mortgages if they’re going to get their mortgage approve at all. The GSEs' Affordable Housing Goal - the way that high-chance home loans formed for all intents and purposes half of all U.S. decreases by the focal point of 2007 were no chance event, nor accomplished oddly enough did banks and other home loan originators pick their own to offer straightforward credit terms to potential homebuyers beginning during the 1990s. In 1992, Congress instituted Title XIII of the Housing and Community Development Act of 1992 (the GSE Act), enactment expected to give low and moderate income borrowers better access to mortgage credit through Fannie Mae and Freddie Mac. This exertion, presumably

animated by a longing to build homeownership, at last turned into a lot of guidelines that required Fannie and Freddie to reduce the home loan endorsing norms they utilized when procuring credits from originators. The GSE Act, and its ensuing enforcement by HUD (Housing and Urban Development’s), set move a progression of changes in the structure of the mortgage market in the U.S. also, more especially the slow degrading of traditional mortgage underwriting standards. Accordingly, in this contradicting proclamation, I will allude to the subprime and Alt- A mortgages that were gained due to the AH (affordable housing) goals, just as other subprime and Alt-A mortgages, as non-traditional mortgages, or NTMs (Non-tariff measures). Pinto, a mortgage finance industry consultant who was the chief credit officer at Fannie Mae in the 1980s estimates the total value of these buys at roughly $4.1 trillion) As per June 30, 2008, promptly preceding the beginning of the financial crisis, the GSEs held or had ensured 12 million subprime and Alt-A loans. This was 37 percent of their total mortgage introduction of 32 million loans, which thusly was around 58 percent of the 55 million mortgages outstanding in the U.S. on that date. Fannie and Freddie, likewise, were by a wide margin the predominant parts in the U.S. mortgage market before the financial crises and their underwriting standards to a great extent set the standards for the remainder of the mortgage financing industry. The Community Reinvestment Act, in 1995, the guidelines under the Community Reinvestment Act (CRA) were fixed. As at first received in 1977, the CRA and its related guidelines required just that insured banks and savings and loan associations (S&Ls) contact low-income borrowers in communities they served. The new guidelines, made effective in 1995, just because required insured banks and S&Ls to show that they were really making loans in low-income communities and to low-income borrowers. A passing CRA loan was one made to a borrower at or under 80 percent of the AMI, and in this manner was like the loans that Fannie and Freddie were required to purchase under HUD's AH goals. In 2007, the National Community Reinvestment Coalition (NCRC), an umbrella association for community activist organization, revealed that somewhere in the range of 1997 and 2007 banks that were looking for regulatory approval for mergers submitted in agreements with community groups to make over $4.5 trillion in CRA loans. A generous part of these commitments seem to have been changed over into mortgage loans, and accordingly would have contributed considerably to the quantity of subprime and other high risk loans outstanding in 2008. Hence, they deserved Commission analysis and investigation. Unfortunately, as laid out in Part III, this was not done. Accordingly, the GSE Act put Fannie and Freddie, FHA, and the banks that were looking for CRA loans into rivalry for similar mortgages—loans to borrowers at or beneath the appropriate AMI. HUD's Best Practices Initiative, in 1994, HUD added another gathering to this rundown when it set up a "Best Practices Initiative," to which 117 individuals from the Mortgage Bankers Association in the long run followed. This program was unequivocally expected to encourage a decrease in underwriting standards in order to build access by low income borrowers

to mortgage credit. Countrywide was by a long shot the biggest member from this group and by the early 2000s was additionally contending, alongside others, for the equivalent NTMs looked for by Fannie and Freddie, FHA, and the banks under the CRA . With every one of these substances looking for similar loans, it was not likely that every one of them would discover enough borrowers who could meet the traditional mortgage lending standards that Fannie and Freddie had set up. It likewise made perfect conditions for a decrease in underwriting standards, since all of these contending entities were looking for NTMs not for reasons for profit however so as to meet an obligation forced by the government. The conspicuous method to meet this obligation was basically to diminish the underwriting standards that prevented consistence with the government’s requirements. By 2008, the consequence of these government programs was an extraordinary number of subprime and other high risk mortgages in the U.S. financial system. Government organizations, or private foundations acting under government direction, either held or had ensured 19.2 million of the NTM loans that were outstanding at that point. On the other hand, about 7.8 million NTMs had been distributed to investors through the issuance of private mortgage-backed securities, or PMBS, basically by private guarantors, such as Countrywide and other subprime lenders. Undoubtedly, the government’s efforts to expand home proprietorship through the AH goals succeeded. Home proprietorship rates in the U.S. expanded from roughly 64 percent in 1994 (where it had been for 30 years) to more than 69 percent in 2004. Almost everybody all through government was satisfied with this, a drawn out objective of U.S. housing policy, until the genuine costs turned out to be clear with the breakdown of the housing bubble in 2007. Situational pressures originate from the circumstance wherein the choice itself is made and may emerge from the physical condition (time of day, heat, etc.) the technological environment (the tools we use) or the nature of specific circumstances. Notwithstanding these situational pressures, Bearman has depicted certain solid situations that apply an excess of pressure over an individual's decision making. These pressures are depicted as goal seduction and situation aversion. Goal Seduction depicts the fascination that we feel towards attempting to accomplish goals and situation aversion abhorrence portrays the shock that we feel from unpleasant circumstances. Goal seduction was recognized by Chris Bearman in their investigations of small commercial pilots in Alaska. Bearman recognized various models where the circumstance had applied undue pressure on their participants to go in a less protected direction. These models could be classified as: time pressure, needing to rescue others people, needing to get together with a significant other, just having one opportunity to accomplish the goal and not getting paid except if the mission was completed. One of the participants in this examination demonstrated that the desire to continue proceeding onward drove them to see the circumstance more optimistically than they ought to have done.

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The onset of the global financial crisis was one such situational pressure. Beyond the financial damage it would cause to the global economy, it also posed a distinctly personal impact upon all individuals involved. Most notably, people who were closely related to the regulation of financial markets felt the burden to take action and prove that they had the expertise required to navigate such a situation. Dealing with such pressures whilst making important decisions is precisely what Bearman’s goal seduction theory signifies. In doing so, financial regulators had been ‘seduced’ by the goals thrust onto them through pressure and ultimately ended up with sub- optimal strategies and regulations. This further fueled the financial collapse and caused detriment in the long term. This is clearly evidenced by the fact that In early 2008, institutional disappointments mirrored the profound burdens that were being experienced in the financial market. Mortgage lender Countrywide Financial was bought by government owned Bank of America in the first month of 2008. And afterwards in March 2008, Bear Stearns, the sixth largest U.S. investment bank, couldn’t to roll over its short-term funding due to losses caused by value decreases in MBS. Prior to the financial crises its stock price had a 52 week high of $133.20 per share, but plunged steeply as disclosure of losses in its hedge funds and other businesses emerged. JP Morgan Chase made an underlying proposal of $2 per share for all the outstanding shares of Bear Stearns, and the deal was fulfilled at $10 per share when the Federal Reserve stepped in with a money related help bundle. It was the year of US Federal elections and the government had very little time to come up with their strategy. During that time Henry Paulson former CEO of Goldman Sachs was serving as Secretary to treasury and Ben Bernanke an economist who was the chairman of Federal Reserve gave President George Bush the suggestion of bailing out the Wall Street. Eventually the US government had to spend $700 Billion to start Troubled Asset Relief Program through which the government would buy the toxic assets from large scale investment firms in order to strengthen them. In other words if we apply the Goal seduction theory here, making a decision under intense pressure situation, US government spent $700 Billion as large financial institutions were likely to shut down. Therefore, the US government and state regulators clearly wound up falling prey to the notion of Goal seduction. Not only that, it evidently hampered their effective response to the financial crisis. Posttraumatic stress disorder (PTSD) is a psychiatric disorder that can occur in people who have experienced or witnessed a traumatic event such as a natural disaster, a serious accident, a terrorist act, war/combat, rape or other violent personal assault (Neria, Y, 2006). Individuals with PTSD have extreme, upsetting thoughts and feelings related with their experience that keep going long after the horrendous event has ended. They may remember the occasion through flashbacks or nightmares; they may feel sadness, fear or outrage; and they may feel confined or alienated from others. Individuals with PTSD may keep away from circumstances or individuals that help them to remember the awful event, and they may have solid negative responses to something as conventional as a loud noise or a coincidental touch.

The financial crisis of 2008 had a profound impact on three kinds of people. Firstly homeowners who lost their most important assets i.e. their homes, this loss either happened by significant decrease in the book value of their houses or some lost their home entirely. Secondly, employees and workers working in various industries who lost their jobs. Workers in the financial industry lost their jobs due to severe economic contractions, workers in other various industries such as automobile industries (General Motors), which were heavily invested in mortgage backed securities had to lay off employees in order to cut cost and insure their survival. Finally recent college graduates who were leaving their educational institutions found that there were no jobs available and thus remained unemployed for a long time. Being unable to financially support one’ self or suddenly losing a large amount of financial resources or livelihood tends to cause physiological issues. Even once you seemed to have recovered from these issues, PTSD is still a critical reality that will have an impact on the mental health of all these individuals who went through the 2008 financial crisis. This may impact those individuals in a different manner, with varying levels of intensity. Such issues are compounded by the lack of knowledge, awareness and understanding surrounding mental health, especially mental health in the workplace. This is evidenced by the fact that one out of four Americans suffer PTSD like symptoms associated with financial stress. Therefore, it is clear that a significant level of PTSD or PTSD like mental illnesses were caused, either directly or indirectly, due to the financial crisis of 2008. In this paper we set out to apply three prominent theories of --- to prove that the financial collapse of 2008 was a disaster that had a profound impact on a large portion of the population. I first applied the misconception of chance theory and proved that the extrapolation of large scale policies and regulations from small sample sizes exacerbated the situation greatly. Secondly, I applied the Goal seduction theory and showed that intense pressure, either professionally, politically or personally whilst making key decisions impacted the financial situation adversely. Finally, I explained the impact that the financial crisis had in terms of mental health, inflicting PTSD on a large portion of the population. Conclusively, the 2008 mortgage/financial crisis is a notable disaster that occurred in the recent past. There are countless lessons we can, and indeed should, learn from this disaster and hope to minimize the impact that future financial disasters may have.

Work cited:  Thakor, Anjan V. The Financial Crisis of 2007–2009: Why Did It Happen and What Did We Learn? http://apps.olin.wustl.edu/faculty/thakor/Website%20Papers/FinancialCrisis2007-2009__adv-view.pdf? fbclid=IwAR0AYRCcLkYI8RexqOMgXsDmRqF5b0QLhM20JcxByty8H43L61OdS28GDKc  The financial crisis inquiry report: final report of the National Commission on the Causes of the Financial and Economic Crisis in the United States . Washington, DC: Financial Crisis Inquiry Commission For sale by the Supt. of Docs., U.S. G.P.O, 2011. Print . https://www.govinfo.gov/content/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf  Maggio, J. (Director). (n.d.). Panic: The Untold Story of the 2008 Financial Crisis [Video file] HBO . Retrieved 2018, from https://www.youtube.com/watch?v=QozGSS7QY_U&t=903s  Ferguson, C. (Director). (2010). Inside Job [Video file]. United States: Sony Pictures Classics. Retrieved from https://www.primevideo.com/region/na/detail/Inside-Job/0OB9T3H6KLIJ51854U9GDQ6  Ashford, Kate. “1 In 4 Americans Have PTSD-Like Symptoms From Financial Stress.” Forbes , Forbes Magazine, 22 Apr. 2016, www.forbes.com/sites/kateashford/2016/04/22/financial-stress/ .  Neria, Y., Nandi, A., & Galea, S. (2008). Post-traumatic stress disorder following disasters: A systematic review. Psychological Medicine, 38 (4), 467-480. doi:10.1017/S0033291707001353

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