Question

How did the regulators contributed to the financial crisis?

How did the bubble contributed to the financial crisis?

Answer 1

1) Financial crisis of 2008 witnessed the critical economic condition prevailed in nations of US and UK. Stock Market crunches, decrease in the value of the assets, ineffective speculation activities and the increase in public debt and individual debt are the main causes of the financial crisis. And also failed action of regulators also considered as the main cause for the financial crisis. Financial Conduct Authority (FSA) and the Federal Reserve Bank failed the decrease the risk of bankrupt issue prevailed in all commercial and investment banks of both US and other European countries. Many investment firms were restricted to abide by the contractual rights to borrow the money from the bank and to pay for the premium for the bond and deposit holders. And also the investment firms was not able to repay their debt due to the effect of hedge funds provisions operated in both UK and US nations. The objective of buying more shares in the stock exchanges in New York and London Stock Exchanges completely washed out the paid-out capital amount to be invested for the day to day operational activities of the firms running in US and European nations. It is evidently proved that the failure of the regulator bodies posed the great threat on financial crisis.

2) Many commercial and investment banking sectors allowed hedge fund operation at very high level. Hedge funds is the risk type of investment of private owned finance companies in uncertain financial source of business. It is tied up with the complicated way of returns. But unfortunately the rate of return was drastically effected and the share holders who invested in the private owned finance corporation not gained any monetary benefit when they need to cover day to day expenses. But when the hedge funds are used to invest to buy or sell the derivatives, the Federal Reserve Bank raised the rate of derivatives which are related with the housing property. At the same time due to rise in interest rate, the asset holders cannot able to pay the debt or due to compensate the rate for Housing Assets. This caused heavy subprime-mortgage crisis and housing bubble crisis. It also effected the financial condition of the middle income group as they found very difficult to sell their own asset for higher expected price without any appreciation of their owned asset value.