The Financial Crisis Of 2007-2008 Case Analysis

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The financial crisis of 2007-2008 hit the United States hard. Many large financial institutions hovered near the edge of collapse, others tumbled to ruin, stock markets plummeted and housing markets suffered. Its aftershocks rippled across the globe, starting a four-year global economic recession, contributing to sovereign debt problems in the Eurozone and stunting international trade. However, perhaps the most acute effects of the crisis were felt by your everyday Jane Does and John Smiths. Literally millions of people lost their jobs, income inequality polarized further, the total wealth of 63 percent of Americans declined1 and consumer confidence plumbed previously unknown lows, dropping to the lowest level it had ever reached.2 For many Americans, the American Dream had died.
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Such was certainly the case after the December 2008 FOMC meeting. 30-year fixed mortgage rate averages dropped from 5.19 percent to 3.37 percent in the three years following the announcement, a 34.4 percent decline.5 But there were more benefits passed along to the consumer than just lower mortgage rates.
Lowering interest rates also thins out the mortgage lender market. From 2004 to 2015, the number of financial institutions qualified under the Home Mortgage Disclosure Act (HDMA) by the FFIEC dropped from 8853 to 6913, a 21.91 percent decline (see appendix, Graph A). Since a lower target interest rate lowers the average rate on mortgages, fewer and fewer lenders can remain profitably in the market. In addition, new lenders aren’t attracted to the market since profit opportunities are now fewer and further between. This thinning out of mortgage lenders creates another benefit for the consumer-- lower search

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