The 2008 Financial Crisis and Liquidity Issues - 666 Words

Liquidity Crisis In Liquidity Crises, Elul (2008) is talking about the most common factors that create financial meltdowns and what steps must be taken to prevent them. This is accomplished through looking at events that occurred in the summer of 2007. It is at this point that he examines how these causes were exacerbated and the best ways to address the challenges. This is providing the reader with a total understanding of the financial crisis and how the federal government should respond during these times. Together, these elements offer a total understanding the common signs of a liquidity crisis and the most effective strategies for addressing them. (Elul, 2008) In the summer of 2007 the economy was overheating. This occurred because a large number of financial institutions had underwritten and invested in subprime mortgages. These are home loans that were marketed to buyers who cannot qualify for traditional mortgages. This is from some kind of issues they are having with their credit, income o r the down payment. What made these assets so risky is the interest rate could be reset higher. This increased the chances that a wave of foreclosures could hit the markets at the same time (from owners who could not afford the payments). To make matter worse, a number of banks had invested a large percentage of depositor funds into these securities. (Addo, 2010) (Elul, 2008) Once homeowners began to default, is when the credit market froze. This is because no one knew theShow MoreRelatedWholesale Funding, Bank Runs And Liquidity Freezes1592 Words   |  7 Pages Wholesale Funding, Bank Runs and Liquidity Freezes In the 2007/8 Financial Crisis Name Course Tutor University City/State Date Wholesale Funding, Bank Runs and Liquidity Freezes In the 2007/8 Financial Crisis Introduction Banks make loans which are not quickly sold at high price. 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