Research Paper for Financial market Example | Topics and Well Written Essays - 3750 words

For Financial market - Research Paper Example The opinions of these individuals range from over-leveraging of the financial products and excessive risk-taking by banks to unjustifiable executives bonuses and salaries and the lack of sufficient regulation of the money and capital markets. It is important to provide an overview of the causes of the economic hardships that prevailed following the Great Recession which began in 2007. This paper is focused on analyzing the causes of the 2008 financial crises with a view of avoiding decisions that associated with negative economic impacts, such as the collapse of the largest financial institution prior to 2008 (Lehman Brothers); the collapse of the Lehman Brothers on September 2008 resulted in the loss of significant investments, jobs and substantial effects on the general performance of the economy (Quirk 31). The subprime mortgages are classified as risky mortgages due to the high probability of defaulting on the loan payment by mortgage borrowers; on the other hand, the prime mortgage is considered less risky mortgage since the borrowers are unlikely to default on the loan payment. The subprime mortgages are considered by a majority of lenders as profitable given the fact that they are associated with high levels of high-interest rates; however, the borrower is likely to fail to meet the periodical payments and the total sum of the loan. The period prior to the financial crisis of 2008, there was an increased competition among the mortgage lenders that saw a number of these players relaxed the underwriting standards to experience increased profits and significant market share (Weber 159). In this respect, there was a tendency by a majority of the mortgage lenders to lend subprime mortgages (risky mortgages) among borrowers with low level of creditworthiness. The lending of the risky mor tgages was notable among mortgage lenders between 2004 and 2007; this