The United States began to the same situation as in Iceland. Deregulation is the act or process of removing or reducing state regulations in a particular market. Banking Deregulation helps small business owners stabilize their income. In 1913, deregulation began in the United States because there was no central banking. Deregulation increased competition with lower prices for consumers in the United States. In 1978, deregulation begin in the United States Banking System which allowed the regular banks to use depositor savings and take loans.
Subprime Lending means loans to people with poor credit scores from one or more credit bureau. It is risky because clients are less likely to be able to pay back their loans. Metuchen Savings Bank was the largest subprime lender in the United States and sold the mortgage loans. This created greedy mortgage lenders preying on potential mortgage holders because they receive commission for every loans they sell and after selling they don’t bear with any responsibilities anymore. It destabilized the housing market because they don’t understand the market and they sell it with much higher prices.
The Derivative is a financial instrument that its price depend on the price of other assets or indexes and it’s really just betting. They took all subprime lending loans and created derivatives. They don’t tell people that these are highly risky loans. In this case the derivatives that they used were CDOs. The subprime loans became abusive, giving credit to many people who were not able to afford them, thus giving subprime mortgages. The rating agencies gave AAA rating to these CDOs to fool people and people buy into probability of something.
Credit default swaps are the most widely traded form of credit derivative. They are bets between two parties on whether or not a company will default on its bonds. Credit default swap means buying insurance policy against investment insuring against probability, it is usually...
Please join StudyMode to read the full document