Mortgage Backed Securities Cause And Effect - 835 Words

Mortgage-Backed Securities: Cause Effect Introduction New-Age Guru Deepak Chopra once said that Wall Street was broken because it had succumbed to greed, corruption, and pure speculation with no real values. At the time, Chopra was informing his audience about the correlation between perception and fragility. Although perception can be changed, fragility cannot: a 100lb sac of concrete is still the equivalent of a 100lb sac of dollars. During the mid-1990s, the US economy had maintained stable growth, low unemployment, and low inflation; it was the longest undisrupted growth period post- the Vietnam War, the Dot.com Boom, and the stock market crash of 1987. Therefore, many politicians, economists, and consumers were under the assumption that the economy was very stable. But in reality this growth period was a faà §ade because it was built on mortgage-backed securities. Ultimately, since fragility does not change, mortgage-backed securities was one the main catalysts for the 2008 financial crisis, a crisis that is still affecting the country today. Throughout this paper, I hope to inform you about the causes and effects of mortgage-backed serecurties. Cause: Creation of Mortgage Backed Securities In the fall of 1982, Congress passed the Garn-St. Germaine Depository Institution Act, a law used to revitalize the housing industry by strengthening the financial stability of mortgage lending institutions (Reagan). Nevertheless, this well-wished Reagan initiative wasShow MoreRelatedFinancial Crisis And The Crisis1468 Words   |  6 PagesSummary Mortgage-backed securities and subprime mortgage crisis were generally thought to be the cause of the 2008 financial crisis. This paper will be discussing the cause of the financial crisis and the relationship between mortgage-backed securities and the crisis. 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