Financial crises in 2006-2010 were very high as a result many business had failed, unemployment increased and many more sector faced problems. Ethics violation was the main reason for major companies. To stimulate the business investment and consumer spending, interest rates were lowered down by Federal Reserve. Leverage requirement was also lowered down by the SEC so that bank can borrow more than in reserve. AAA rating MBS products are sold to investors. In 2007, many people faced financial problems because the housing price and MBS products value fall down and even went worthless in some cases. Federal government intervened to prevent the crises with an amount of $700 billion bailout. TARP is designed to prevent the future failures. Adequate information: Federal Reserve lowered the interest rate from 6.5% to 1%, the average household debt was 127%, and Federal Reserve intervened with $700 billion bailout. To determine: Two reasons behind the recent financial crises.

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Chapter 20, Problem 3VC

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Case summary: Financial crises in 2006-2010 were very high as a result many business had failed, unemployment increased and many more sector faced problems. Ethics violation was the main reason for major companies. To stimulate the business investment and consumer spending, interest rates were lowered down by Federal Reserve. Leverage requirement was also lowered down by the SEC so that bank can borrow more than in reserve. AAA rating MBS products are sold to investors. In 2007, many people faced financial problems because the housing price and MBS products value fall down and even went worthless in some cases. Federal government intervened to prevent the crises with an amount of $700 billion bailout. TARP is designed to prevent the future failures.

Adequate information: Federal Reserve lowered the interest rate from 6.5% to 1%, the average household debt was 127%, and Federal Reserve intervened with $700 billion bailout.

To determine: Two reasons behind the recent financial crises.

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