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Essay / Research Paper Abstract
In 2009 the banks are suffering as a result of the credit crunch. The cause is not only the result of events within the house market; there are also defaults on small businesses and personal loans. This 6 page paper considers how and why the banks are now suffering these defaults, looking at issues such as the way bank became less risk adverse, the management of risk assessment, asymmetrical information and the role of governments and central banks. The paper focuses ion the US and the UK. The bibliography cites 7 sources.
Page Count:
6 pages (~225 words per page)
File: TS14_TEpoorloan.rtf
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Unformatted sample text from the term paper:
that folded in the US and the large bail out in the UK which lead to the nationalization of Bradford and Bingley as well as Northern Rock, and the government
holding the majority ownership interest in the Royal Bank of Scotland. The attention has focused on the housing market and the issues surrounding this including the sub prime sector
and the problems which have been caused by falling property values. However, it is not only an issue of falling house process, and land values, and the toxic loans that
have damaged the banking industries in the UK and the US as well as the rest of the world, there are other issues. The banks are facing increasing problems from
poor performing loans that have been made to households and small businesses. It may be argued that there are a number reasons behind the reasons for the increasing levels
of failures these include the way banks may have become less risk adverse, the problem of asymmetric information, the knowledge that central banks can be the lender of last resort
and the general support given to the policies by government own actions with high trade deficits and the risk free investment opportunities that this provides. This has been seen in
the past in different scenarios and different proportions on other economic difficulties (Nellis and Parker, 2000). There is little doubt that the banks
had become less risk adverse, accepting more risks. There is a phenomenon in the stock market that was described by by professor Robert Shiller of Yale as "irrational exuberance"
(Shiller, 2000). Shiller was an economics professor and had been watching the stock market for a long-time, examining how it operated and the problems with the market. It is seen
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