The Big Short: Examining the Causes of the 2007-2008 Financial Crisis - Essay Sample

Paper Type:  Essay
Pages:  2
Wordcount:  523 Words
Date:  2023-05-10

Introduction

The big short is a biopic film by Adam McKay hinged on the novel The Big Short: Inside the Doomsday Machine written by Michael Lewis. The movie revolves around the global financial crisis of 2007-2008, which affected the financial markets all over the world. After watching the movie, I concluded that it is hard for just a single event or person to be the cause of depression. Individuals and institutions actions over time are the primary cause of the financial catastrophe. The following people and organization are the primary cause of the financial crisis.

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Firstly. The lenders here representing the banks gave out loans subpar to individuals who are not in a position to keep up with the repayment plan (McKay, 2010). The subpar loans attract high-interest rates and the collateral for them were not of good quality. It is pivotal for the bank to carry out due diligence before issuing out a loan. The high-interest rate should not sway the bank; it will gain and forget to look at the creditworthiness of a customer. The prices for properties had shot up, and it led to financial institution going out a loan to developers as they saw they would reap profits. But inflation led to the prices of property to go down as the developers grasped borrowers who were having a hard time repaying their mortgages (McKay, 2010).

Consequently, the prices of properties held by the financial institutions fell by a considerable margin. As shown in the movie, Michael Blurry and his colleagues saw a problem with the mortgage securities which relied on unrestricted inflation. The Lehmann Brothers investment bank went bankrupt as a result of the subpar loans rendering thousands of employees jobless and also the loss of investment for many entrepreneurs.

Secondly, the government also played a part through its institutions. The government had liberalized the financial market and reduced regulations on policies which were supposed to protect the economy (McKay, 2010). The principal responsibility of an institution like the Federal Reserve is to supervise and control financial institutions in the country. Thus they ensure any policy made by it protects the consumer at all cost. If the Federal Reserve had put measures in place to manage inflation, the crisis would not have occurred.

If some measures are put in place, it is possible to stop another financial crisis from occurring. Firstly, the executives in charge of banks should be given stiff penalties to deter them from committing financial misconduct. The percentage of liquidity assets on hold should be increased to cater for maturing debts whenever they arise. This will cushion the financial institutions. The consumers should also be educated on financial literacy for them to make an informed decision with regards to the mortgage taken.

As consumers, before taking on a mortgage one should get to know more information about it first. If one fills like he still does not understand, he should seek the service of a financial consultant. One should also have a contingency plan of repaying the mortgage in case he loses employment or the economic conditions get tougher.

Reference

McKay, A. (Director). (2010).The Big Short [Film]. Regency Enterprises.

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The Big Short: Examining the Causes of the 2007-2008 Financial Crisis - Essay Sample. (2023, May 10). Retrieved from https://proessays.net/essays/the-big-short-examining-the-causes-of-the-2007-2008-financial-crisis-essay-sample

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