House Market Crash of 2008: How Lack of Regulatory Oversight Led to the Crisis

The lack of regulation oversight was the main reason for the house market crash in 2008. It led to predatory mortgage lending, which fed the bubble hence creating a dangerous excess of unregulated markets.

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Lo, A. W. (2009). Regulatory reform in the wake of the financial crisis of 2007-2008. Journal of Financial Economic Policy, 1(1), 4-43. DOI: 10.1108/17576380910962376

This scholarly article focuses on the lack of regulatory measures as a cause for the financial crisis in 2008. The author argued that lack of regulation oversight shows the unpreparedness which led to more damaging effects. The author has significant authority on this topic as a professor at the MIT Sloan School of Management and he has published numerous articles in finance and economics. This journal article answers my research questions for it emphasizes on the importance of effective relegations and explains why lack of them led the house market crisis in 2008.

Thakor, A. V. (2015). The financial crisis of 2007-2009: why did it happen and what did we learn?. The Review of Corporate Finance Studies, 4(2), 155-205. https://doi.org/10.1093/rcfs/cfv001.

In this scholarly review article, Thakor examines the house market crisis based on two things the triggers and the vulnerabilities. The article explains why the financial crisis happened in 2008 by examining the events in the market before and the lessons we learned from the crisis. This scholarly article answers my research question because the author lists lack of regulation oversight as one of the major reasons for the financial crisis

Vaheb, E. (2013). The Financial Crisis of 2008: The Greatest Downturn in the US Economy Since the Great Depression. University of Connecticut - Storrs Press.v Retrieved from Uconn Library eBook Collection

This eBook examines the financial crisis in 2008 in the US in an extensive manner. The book lists various causes to the greatest downtown experienced by the economy since the Great Depression. The book, however, states that the deregulation was the main underlying factor for the house market crash. The eBook answers my research paper because in its concluding chapters the author states that without changing fundamental practices and regulating a financial crisis is likely to happen again

Prachi, J. (n.d.). Lack of Regulation as a Cause for the Global Financial Crisis. Retrieved from https://www.managementstudyguide.com/global-financial-crisis-and-lack-of-regulation.htm

The article is found on the website Management Study Guide and the article was written by Prachi Juneja, who is a senior leader and director at Analytics and Market Insights, US Small Merchants Services. The website explains why lack of regulation was the main cause of the global financial crisis. Although this website offers less detail on the specific cases, it provides two main reasons which answer my research question and the two reasons are the repeal of the Glass Steagall Act in the US in the late 1990s and the allowance of the derivative markets as the main reason for the house market crash

Colin M. & Sarah E. (2017). The 2008 Housing Crisis: Don't Blame Federal Housing Programs for Wall Street's Recklessness. Retrieved from https://www.americanprogress.org/issues/economy/reports/2017/04/13/430424/2008-housing-crisis/

This article on the American Progress Organization website states that the real causes of the housing and financial crisis were the predatory private mortgage lending and the unregulated markets. The webpage states that financial products, banks and other investors were exposed to the mortgage market leading to a rapid decline in investors' confidence which answers my research question.

Summary

The United States has just marked a decade since it came out of the most serious financial crisis that hit the nation in 2008. The economic recession that ensued was no more different from the Great depression of 1930. However, whereas the Great Depression was attributed to a number of issues which included drought, economic policy, and stock market crash, the 2008 housing market crash and the following financial crisis was mainly as a result of regulatory lapses in the financial markets. A lack of regulatory oversight encouraged the emergence of predatory mortgage lending which fed the bubble hence creating a dangerous excess of unregulated markets.

Financial markets ought to be regulated as a precautionary measure. The lack of regulatory measures prior to the housing market crash of 2008 was a sign of unpreparedness by the financial regulatory bodies to set up measures to prevent a possible crisis. The lack of preparedness in the establishment of precautionary measures exposed the market participants to the danger.

Two important events are attributed to loosening regulation of the financial markets. These are the repeal of the Glass Steagall Act in the late 1990s and allowed the derivatives market to flourish resulting in the practice of trading derivatives over the counter instead of through a clearinghouse. The trading of financial instruments in the absence of a centralized mechanism was leeway to predatory lending which created a dangerous excess of unregulated markets. The vacuum created by a lack of regulatory measures through a centralized mechanism encouraged a large-scale predatory mortgage lending. This was a trap for many United States citizens who participated in the unregulated market without cushion or security for their funds. Unregulation, therefore, created a space for careless trading on risk financial instruments related to housing, and eventually resulted in a financial crisis.

References

Colin M. & Sarah E. (2017). The 2008 Housing Crisis: Don't Blame Federal Housing Programs for Wall Street's Recklessness. Retrieved from https://www.americanprogress.org/issues/economy/reports/2017/04/13/430424/2008-housing-crisis/

Lo, A. W. (2009). Regulatory reform in the wake of the financial crisis of 2007-2008. Journal of Financial Economic Policy, 1(1), 4-43. DOI: 10.1108/17576380910962376

Prachi, J. (n.d.). Lack of Regulation as a Cause for the Global Financial Crisis. Retrieved from https://www.managementstudyguide.com/global-financial-crisis-and-lack-of-regulation.htm

Thakor, A. V. (2015). The financial crisis of 2007-2009: why did it happen and what did we learn?. The Review of Corporate Finance Studies, 4(2), 155-205. https://doi.org/10.1093/rcfs/cfv001.

Vaheb, E. (2013). The Financial Crisis of 2008: The Greatest Downturn in the US Economy Since the Great Depression. University of Connecticut - Storrs Press.v Retrieved from Uconn Library eBook Collection