Banks and financial institutions deposit securities derived from mortgage activity. Securities are considered to have better returns and lower risks. Falling stock returns also led to global economic disaster. Low interest rates in the financial and real estate markets have led many buyers to buy stocks at bargain prices. Therefore, this affects the demand for money loans and the money markets.
The weakness of the regulatory mechanisms of the financial and real estate markets is also one of the main factors in the spread of the economic crisis. For example, the field of financial regulation cannot monitor the lending activities of Lehman Brothers. It must be said that the failure of the banks led to the collapse of the world monetary system as the lending process got out of control. There is also no manipulation of household spending and entertainment costs in the market by financial regulation. Financial institutions exploit credit guidelines and regulatory loop holes.
Structural Problems in the US Economy
The lack of integration between financial institutions and financial regulators and the current modern practices in financial markets are part of the structural problems in the US economy The regulatory industry lacks adequate mechanisms that can be used to regulate financial innovation in the market. For example, due to structural problems in the financial sector, national regulators can monitor the activities of commercial banks or develop appropriate strategies to ensure correct practices in the banking system.
The Agency also does not control the APR of financial market loans. Before the 2008 financial crisis, the annual interest rate on the country's loans rose to 18.9%, which is higher than the country's GDP ratio. This leads to the debt problem in the United States. Structural problems will continue the cycle of financial crises forcing governments to launch bailouts.
The structural issue of lack of integration between financial institutions and regulators, if not dealt with in the right way, will lead to further economic and financial problems. A weak financial structure will lead to more debt problems, which may increase in size due to global financial problems, which will also affect the performance of the country’s economy. Changes in the global financial sector may affect the performance of the financial sector. Fluctuations in exchange rates may lead to further economic hardship if regulatory structures do not improve.
Increased financial institution and Investor Lending:
At the eve of the worldwide economic disaster, banks and other buyers in the united states and abroad more and more borrowed to growth lending and purchaseMBS merchandise. Borrowing cash to shop for an asset (known as leverage) increases ability earnings, but additionally increases ability losses. As a result, when actual property charges started to fall, banks and investors suffered massive losses from borrowing heavily.
In addition, banks and a few investors are more and more calling for brief-term funds (including overnight price range) to buy assets that can’t be offered fast. As a end result, they increasingly depend upon creditors – inclusive of other banks – for new loans as present quick-time period loans are paid off.
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