Heading up the US treasury Case Study Solution
Overview
The Financial Crisis of 2007-2009 was one of the most devastating and a disaster for many economies who were involved under the same platform. It is the most painful event for many countries which was not enabled them to recover or refill the business operations accordingly. There were many symptoms to start the crisis like the improper use of the fiscal and monetary policies implemented by the US government and the treasury departments.
Many countries gripped with the same chain and suffered huge loss that are still needed to be recovered in order to survive in the future. There were many economic world crisis that destroyed the overall economic structure of many countries. However, this event is the most horrible for the businesses in many industries. The main symptom was to allow the sub-prime categories to take necessary considerations to finance the mortgage and asset backed securities which they not recovered.
Another major impact was the heavy chain that managed their entire funds like the participation of commercial banks, investment banks, speculators, insurance companies etc. The event was like to increase the size of the bubble and blast if the proper chain of operations would not implement. It means that if the sub-prime categories would not repay the certain amount of mortgage backed security then it can be said that the commercial banks or the insurance would suffer a huge loss in the future.
So, the overview of the case simply indicates the sign of economic damages because billions of amount were held in debt or the obligations to repay by the sub-prime categories. Furthermore, another impact was the involvement of the speculators that move the transactions towards the increase in the size of the mortgage securities. It allowed them to take the profits from buy to sell criteria. Therefore, it is said that if the certain transactions would move abnormally then the whole condition indicates the sign of break out the chain(Amadeo, 2016).
The term securitization was the major factor under the crisis that consisted of the long-term debt structure of the securities like asset backed security or mortgage back security that made several damages for the insurance and commercial banks. In addition to it, the speculators and investment banks also suffered huge losses and not be able to recover in that time. The event was a disaster for many developed as well as developing nations over time.
It was connected with the economies which relied on the US economy. The impact was severe for them because of the devalued in Dollars that damaged most of the exchange values. Several other factors like the negative impact in the oil and gas industry and other major industries which contributed the economic growth of the world. Therefore, all these were subjected to downfall in the GDP and other economic factors that led to growth(GUINA, 2016).
Many European and Asian countries changed their fiscal and monetary policies in order to combat and overcome the damages caused by the crisis. But they were not be able to reduce the pressure or suffered huge economic losses. Thus it can be said that the event was the world’s largest negative outcome for the economies and many industries were almost destroyed and not consider a recovery or retake the operations in the same way like the insurance companies and the commercial banks.
Plan of action that would overcome the financial crisis
Under the particular circumstances, it is identified that the main root cause of the financial crisis was the improper use of the securitization that damaged the overall chain to control the process. The commercial banks lent money to the sub-prime categories and that was the biggest mistake to such event. However, there were various polices and structures that increased the possibility of the great recession.
The policies implemented by the US treasuries was allowing the sub category peoples to take advantage of the securitization in order to improve their lifestyle and plan for the future considerations. The policies was focusing on to the free hand for the commercial banks to step up the certain course of actions. As far as the fiscal policies were concerned, the US government developed the budget that was highlighting the immense growth in the future prospect.
Heading up the US treasury Harvard Case Solution & Analysis
So, many industries were trying to grow fast and allow the tool of securitization to manage their risks and future prospects. In addition to it, the growth was also subjected to real estate lending activities for the upper classes as well as the sub-prime categories. The commercial banks set the flexible terms and conditions for the middle class peoples to exercise the lending structure in order to outperform their living standards(Havemann, 2009).
With the considerations, a balloon was developing and increased the size of the arbitragers and speculators to exercise the debt and made the profits through buy and sell of the properties. It expanded the possibility of the increase in the prices of the properties which the sub-prime categories would not able to afford for repayment of the principle amounts. Another impact of the financial crisis was the use of monetary policy by the state bank. So, it set various terms and structures for the flexibility made to the middle class people that would allow them to make future payments without the threats of default. The role of US treasury department was key to destroy the economy through the recession..............................
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