answer 1-2 - Econ 350 U.S. Financial Systems, Markets and...

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Econ 350 U.S. Financial Systems, Markets and Institutions Answers to selected problems (1 - 2) Assignment One 1. a. The global pool of money was the total amount of global investment funds in fixed income securities. At that time it was about $70 trillion. b. As the global pool of money looked for profitable investments, money flooded into the US real estate market. To make more loans lending standards were relaxed. Mortgage originators had the incentive to offer predatory mortgages since they would receive commissions regardless of the borrower’s ability to repay. As more predatory loans were made, eventually foreclosures started to rise. When the housing bubble burst and home prices began to fall, many mortgage holders found it impossible to refinance. Since many of these mortgages had been securitized, the foreclosures had ripple effects throughout the system. As mortgage backed securities began to fail, we witnessed a credit crisis as lenders lacked confidence to make loans. c. A lack of government oversight concerning predatory lending and securitization certainly contributed to the problem. Rating agencies provided ratings that were too high
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This note was uploaded on 05/09/2009 for the course ECON 350 taught by Professor Christianson during the Spring '08 term at Binghamton.

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answer 1-2 - Econ 350 U.S. Financial Systems, Markets and...

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