The financial crisis of 2008 left the U.S. economy in a state of severe recession, which is still being felt all over. This has also left the government in a frantic condition to rebuild the financial markets from the...The financial crisis of 2008 left the U.S. economy in a state of severe recession, which is still being felt all over. This has also left the government in a frantic condition to rebuild the financial markets from the bottom up. What started out with excessive bank lending on mortgages lead to the mortgage crisis and a ripple effect on the economy. The cancer has spread globally, affecting every major marketplace and all the major states in the U.S.. Our economy is still very fragile because of this crisis, but eventually we will recover in a few years time to achieve robust economic growth. Long standing cultural pressures in the United States maintained that home ownership was necessary to be a part of the American Dream, and this cultural stance was reinforced by Clinton in 1994, when he enacted a program to raise home ownership to more than two-thirds of all adults. With the tacit blessing of the Federal Government, many mortgage companies sprung up, that catered to those in lower income brackets, offering them the mortgages that many did not have the financial sophistication to understand and deliver. Coupled with the skyrocketing costs of property taxes, insurance, and maintenance costs, many homeowners found themselves unable to pay their mortgages. The whole industry tanked, causing displacement of people and increased unemployment. The lenders of these mortgages sold the notes to investment bankers, and they were sold as high-quality investment grade securities. The major rating agencies were complacent in this tactic, causing rapid default rates on these mortgages; many commercial and investment banks got caught in this crisis. The prices of homes continue to decline, and many homeowners find themselves under water on their mortgages. It was found that in 2010, the U.S. government was responsible for nine out of every ten mortgages issued, which caused further problems with Fanny Mae and Freddie Mac. The crisis is still continuing, with no end in sight. The analysis was based on the data analysis and readings from the journal, as well as various Wall Street commentaries.展开更多
Dividing aggregate liabilities by GDP is not an appropriate method for calculating the leverage ratio, and may mislead deleveraging operations. In terms of an intrinsic mechanism, an appropriate measure of leverage ra...Dividing aggregate liabilities by GDP is not an appropriate method for calculating the leverage ratio, and may mislead deleveraging operations. In terms of an intrinsic mechanism, an appropriate measure of leverage ratio should be the liability/asset ratio. In their business operations, it is inevitable for real-economy enterprises to incur liabilities arising from business and financial transactions. Therefore, the significance of deleveraging operations is to reduce the leverage ratio below a certain threshold to effectively prevent risks arising from an excessive leverage ratio, rather than to reduce the liability ratio of real-economy enterprises to zero. For real-economy enterprises, a key question is how to adjust their debt structure by reducing current liabilities and increasing mid-and long-term liabilities. The debt structure of real-economy enterprises is primarily determined by their financial structure. Hence, it is essential to adjust the financial structure in order to improve the debt structure of real-economy enterprises and increase the share of direct finance. Various risks exist in the combination of shares and bonds within the banking system, investment-lending linkage and market-based debt-to-equity operations, which are options in reducing the leverage ratio for real-economy enterprises. From the standpoint of giving play to capital market functions, it is advisable to increase the issuance of midand long-term corporate bonds and preferred stock, restrict non-financial listed companies from engaging in financial operations and the shareholders of listed companies from selling shares, encourage equity investment institutions to enhance equity investment in realeconomy enterprises, and further develop the financing function of the stock market.展开更多
文摘The financial crisis of 2008 left the U.S. economy in a state of severe recession, which is still being felt all over. This has also left the government in a frantic condition to rebuild the financial markets from the bottom up. What started out with excessive bank lending on mortgages lead to the mortgage crisis and a ripple effect on the economy. The cancer has spread globally, affecting every major marketplace and all the major states in the U.S.. Our economy is still very fragile because of this crisis, but eventually we will recover in a few years time to achieve robust economic growth. Long standing cultural pressures in the United States maintained that home ownership was necessary to be a part of the American Dream, and this cultural stance was reinforced by Clinton in 1994, when he enacted a program to raise home ownership to more than two-thirds of all adults. With the tacit blessing of the Federal Government, many mortgage companies sprung up, that catered to those in lower income brackets, offering them the mortgages that many did not have the financial sophistication to understand and deliver. Coupled with the skyrocketing costs of property taxes, insurance, and maintenance costs, many homeowners found themselves unable to pay their mortgages. The whole industry tanked, causing displacement of people and increased unemployment. The lenders of these mortgages sold the notes to investment bankers, and they were sold as high-quality investment grade securities. The major rating agencies were complacent in this tactic, causing rapid default rates on these mortgages; many commercial and investment banks got caught in this crisis. The prices of homes continue to decline, and many homeowners find themselves under water on their mortgages. It was found that in 2010, the U.S. government was responsible for nine out of every ten mortgages issued, which caused further problems with Fanny Mae and Freddie Mac. The crisis is still continuing, with no end in sight. The analysis was based on the data analysis and readings from the journal, as well as various Wall Street commentaries.
文摘Dividing aggregate liabilities by GDP is not an appropriate method for calculating the leverage ratio, and may mislead deleveraging operations. In terms of an intrinsic mechanism, an appropriate measure of leverage ratio should be the liability/asset ratio. In their business operations, it is inevitable for real-economy enterprises to incur liabilities arising from business and financial transactions. Therefore, the significance of deleveraging operations is to reduce the leverage ratio below a certain threshold to effectively prevent risks arising from an excessive leverage ratio, rather than to reduce the liability ratio of real-economy enterprises to zero. For real-economy enterprises, a key question is how to adjust their debt structure by reducing current liabilities and increasing mid-and long-term liabilities. The debt structure of real-economy enterprises is primarily determined by their financial structure. Hence, it is essential to adjust the financial structure in order to improve the debt structure of real-economy enterprises and increase the share of direct finance. Various risks exist in the combination of shares and bonds within the banking system, investment-lending linkage and market-based debt-to-equity operations, which are options in reducing the leverage ratio for real-economy enterprises. From the standpoint of giving play to capital market functions, it is advisable to increase the issuance of midand long-term corporate bonds and preferred stock, restrict non-financial listed companies from engaging in financial operations and the shareholders of listed companies from selling shares, encourage equity investment institutions to enhance equity investment in realeconomy enterprises, and further develop the financing function of the stock market.
