FIN 100 Week 4 Discussion

FIN 100 Week 4 Discussion

Please respond to the following:

o VIDEO: The Crisis of Credit Visualized https://www.youtube.com/watch? v=bx_LWm6_6tA

 Contagion Effects of Credit Crisis: Explain how the credit crisis adversely affected many other people beyond homeowners and mortgage companies. Do you believe the impact of the credit crisis is still being felt today? Please explain, be thorough in your response and provide any available citations.

The credit crisis affected various people other than just the homeowners and mortgage companies involved negatively. The owners obviously lost their houses while the mortgage companies totally lost their investments. This crisis also hurt companies that had given homeowners insurance to the homeowners, as a lot of the property were used their homes as collateral but the homes were worth much less than the amount that was owed on their mortgages.

A lot of the institutions that funded the mortgage-backed securities (MBS), used them as collateral when they borrowed money from the lenders. When the value of the (MBS) securities went down, the lenders couldn’t trust that the (MBS) would be enough collateral if the financial institutions were not able to pay the loans back. Basically, the investment losses from all sides and then the unemployment rates that dropped, weakened the the economy and made it much worse.

I think the effects of this crisis are still making an impact on the market today. We have been more dependent on salaries and wages than any period before the crisis occurred. One way we are affected, for example is first time homeowners and buyers are unable or it is more difficult to buy a house due to lower credit scores or not enough money to place a down payment on a home. Hopefully, we can help plan better to prevent something like this happening again.