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The Global Economic Crisis

Autor:   •  October 31, 2013  •  Research Paper  •  2,275 Words (10 Pages)  •  811 Views

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The Global Economic Crisis

Abstract

Today, many people blame the global economic issues on one of several factors. Some people blame it on the President for allowing jobs to go overseas. Some people blame Wall Street, particularly the big crash, and some people make up random reasons. While it is impossible to pin point the crisis down to one cause, there are several things that can be examined and linked either as a potential cause or as an effect of all of the other issues we face financially. This paper will take a look into fair market value determination, potential downgrading of US treasury bonds, method comparison, etc. By looking into various aspects of the economic world, we may be able to understand a more thorough picture of how things work.

The Global Economic Crisis

The world of finance is very difficult to dissect. The current economic crisis has given investors, business owners, and everyday working class people a reason to learn more about how things work and what needs to be changed. By looking at areas such as fair market value, US treasury bonds, and many more areas we, as consumers, may be able to see a different side of the financial globe we are now in. Will this make any of us financial wizards? It is doubtful, but knowledge is a great tool for the future.

When determining the fair market value of investments, things can get tricky. Mortgage-Backed Securities are of the most difficult to determine. According to the U.S. Securities and exchange, a mortgage-backed security is a debt obligation that represents claims to the cash flows from pools of mortgage loans, most commonly on residential property. Mortgage loans are purchased from banks, mortgage companies, and other originators and assembled into pools. Securities representing claims are then issues by the entity. Some companies such as Fannie Mae can borrow from the treasury to provide security for investors while some companies deal with private label securities.

Mortgage-backed securities are not as popular as they once were. They have become such a risk that many investors have stopped trading them. For example, market-backed securities are purchased for 150 million. Because of an increase in defaults, the value of the securities rapidly fell. No one can determine what the proper way to document the market value of the securities. According to The Price is Right! (Or Wrong!), the government began working on a solution to this problem (Brigham & Ehrhardt, The Global Economic Crisis: The Price is Right! (Or Wrong!), 2009). If the price is too low, investors could see an understated value. Setting too high of a price could cause companies that need to give up remaining and eventually causing greater losses for the investors, especially the U.S government. Stating the wrong price could cause a

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