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The United States domestic subprime mortgage crisis did not occur overnight, nor can it be cured overnight. It had been building up for several years. The bubble finally burst in September 2008 and sent devastating waves throughout the world’s financial markets.

To appreciate the size of the crisis it is important first to take a quick look at the numbers. The U.S. mortgage market is estimated at $12 trillion of which over nine percent are currently delinquent or in foreclosure. Subprime loans represent only 6.8 percent of mortgage loans yet currently they represent 43 percent of foreclosures; in 2007 1.3 million properties were subject to foreclosure filings, an increase of 79% from the previous year.

There were several reasons for the crisis. First, banks and mortgage lenders, challenged by ever-increasing domestic competition, made too many high-risk home loans to borrowers with either poor credit or whose income did not justify the monthly mortgage payments and to those who were unable to make a meaningful down payment. Rising home values and poor lending practices over several years had encouraged homeowners to refinance, more often than not by way of adjustable rate mortgages. Additionally, overbuilding during the boom years created too much supply exacerbating a decline in real estate market values.

Interest rates began to rise in 2006 and this further contributed to a decline in home values in many parts of the United States making refinancing more difficult. This triggered an increase in defaults and foreclosures. The situation accelerated considerably and far faster than anyone anticipated and led to the global financial crisis of 2008.

How did this essentially domestic United States

subprime mortgage problem turn into a global financial crisis?

Traditionally banks provided finance to their customers to buy homes and took as security a mortgage on the properties. The banks retained the credit risk until the customer finally paid off his mortgage. This practice changed as a result of clever and intricate financial innovations whereby lenders sold to third parties the rights to receive the mortgage payments and at the same time off-loaded the accompanying credit risk. This process is termed”securitization.” These securities are called “mortgage backed securities” or “collateralized debt obligations.”

These mortgage backed securities were then packaged in multi-million dollar ‘lots’ and sold to, or underwritten by, the investment banking community which then sold them to investors throughout the world. As more and more homeowners defaulted, the amount of cash that flowed back into the mortgage backed securities pool dried up. This resulted in international financial mayhem.

At the present time the international community and the world’s central banks are working feverishly to come up with an acceptable band-aid. Without a quick fix, there will be more bank failures and a shut down in lending. This credit crunch will stifle the world’s economies in all sectors, manufacturing, wholesale, retail and distribution. No sector will escape the ripple effect.

But a quick-fix is not a solution to avert another mortgage crisis. Steps to be taken to limit the risk of a reoccurrence of the present crisis include, but are not limited to, improving the transparency of the financial instruments involved in securitization. The instruments that currently evidence mortgage backed securities are complex even to the most sophisticated investors. Greater transparency would allow for more efficient monitoring; Sensible and practical regulations by federal regulators; credit rating agencies to make their reports more informative and demonstrate greater clarity; Commercial banks to provide more information about their off-balance sheet activities; The trading of mortgage backed securities, or other derivatives, to take place only on regulated exchanges; a standardization of documentation and instruments; The world’s central banks insisting that commercial banks operating under their auspices should have more capital and less leverage and Greater effective government supervision.

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What began as an American financial crisis in September quickly spread into a global panic that sent stock markets from Reykjavik to Moscow tumbling by anywhere from forty to sixty-five percent, declines unmatched since the Great Depression of the 1930s. The proximate cause of the crisis was the collapse of several large investment banks, but the real cause was the risky get-rich-quick schemes cooked up by the banks and backed by poor investments and the Federal Reserve’s low interest rates.

Investment banks like Bear Sterns and Lehman Brothers collapsed because they could not cover their commitments when the securities they held declined in value as a result of the collapse of the U.S. housing market. The decline in home prices made cleverly-packaged securities that rested on mortgages worth less and less, stripping wealth from the system and forcing banks to cut lending. The result froze the flow of credit, bringing the economy to a halt.

None of this could have been possible, however, without decades of low interest rates by central banks like the Federal Reserve. Central banks came to believe that the correct response to financial difficulties was to cut the interest rates they charge to investment banks. These historically low rates meant that banks could pump money into the economy, but at times there was so much money that they began making ever-riskier investments to keep pace with the flow of cash from the central banks. The result was the great housing bubble of 2001-2006, and the subsequent problems caused by its end.

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Ancient Egypt : Color of life – Slavery

Thanks to Hollywood, many people still believe that the ancient Egyptians utilized vast armies of slaves to build the pyramids. This view is based in part on the biblical account in Exodus of the Jewish people being held in bondage in Egypt. However ancient Egyptian slavery was very different from the more familiar types of slaves found in Greece, Rome, or the pre-Civil War United States.

Egyptian slaves were known as Hem, but they were not completely under the domination and control of masters. Instead, Egyptian slaves were persons who had lessened rights and were dedicated to service. One could find oneself a slave through debt bondage, capture in war, or several other situations that resulted in reduced status. However, many slaves had better and more comfortable lives that free peasants who worked the land. In addition, it was considered a moral duty to treat slaves well. Some slaves were even freed by their masters and went on to live as free peasants.

Originally, hemu (plural of hem) were restricted to temples and royal households, but over the course of Egyptian history they became more widespread throughout society. During the Old Kingdom (2575-2150 BCE), the first private individuals owned slaves. By the Middle Kingdom (1975-1640 BCE), slaves were being imported from Asia.

As for the pyramids, however, they were not the result of Hollywood’s vision of massive slave armies pulling blocks up the sides of the pyramids. Instead, free Egyptian peasants are believed to have built the pyramids during the months when they could not grow grain in exchange for food from the Pharaoh’s reserves of grain. Oddly enough, slaves of the royal household may well have been supervising the free peasant laborers!

The Egyptians worked hard at building the pyramids because they believed they were intimately connected with the realm of the gods. For the ancient Egyptians, the pyramids, the slave system, the royal household—all were part of a divinely-ordained order in which the Egyptians were the center of creation. The pyramids were expressions of the religious belief that the bodies of the dead needed houses of eternity in which to live so that they would be ready for the resurrection, when the soul returned to the body for a new, eternal life.

Ancient Egyptians believed in many gods, and at various times different deities were considered among the most important. One of the most important throughout the centuries was Osiris, the god of death and resurrection, who was believed to preside over the realm of the dead and give the souls of the departed eternal life. His wife was Isis, the goddess associated with mothers, wives, and slaves. Their son Horus became pharaoh and ruled Egypt in its golden age. The most important god in later Ancient Egypt was Amun, the ram-headed king of the gods. In his composite form as Amun-Ra, he was also god of the sun.

Egyptian religion was practiced largely within the temples, large stone structures occupied by priests. Most Egyptians would never enter a temple and would have little contact with the religious ceremonies therein except for the public festivals when statues of the gods would be paraded outside the temple for public viewing. Nevertheless, the Egyptian people felt a strong attachment to their faith and their gods for thousands of years. When the pharaoh Akhenaton (reigned c. 1351-1336 BCE) tried to upend Egyptian religion and declared there was only one god, the sun disc, the priests and common people opposed him, and the old gods were restored.

Egyptian religion would continue for more than a thousand more years, even during the Greek and Roman occupations, until it was replaced by Christianity and then Islam, the religion of most Egyptians today.

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Essay outlining is a simple process by which the student constructs the “skeleton” of the essay as a way of organizing thoughts and ideas before starting to write. The basic idea of an essay outline is to list the major points in the order in which you will discuss them. This enables you to think through your essay logically and consider all the material that needs to go into it.

            Many students find the act of outlining difficult, often for a number of reasons. First, most students aren’t trained in thinking through from beginning to end, preferring instead to “make it up as they go along” with the idea that writing without a plan saves time that might be wasted outlining. In fact, the opposite is true. A good outline will help you write faster by removing the extra time needed to think through the next point to discuss.

            Other times, students find outlining hard because they do not make the connection between the outline and the finished product, viewing them instead as separate assignments that make for more busywork. Instead, you need to understand that the outline is just a summary of what goes into the essay, a way of “pre-writing” the paper before you write it.(build your own essay now)

            Lastly, students find outlining hard because they haven’t done the research or put time into thinking about the paper. Outlines are successful when the student has devoted time and effort to thinking about them, effort that’s rewarded in stronger final essays that are easier to write because much of the work is already done.

            The EssayExperts.com knows all about the art of outlining, and our academic writers can show you exactly how it’s done, from putting together the initial outline to finalizing the completed draft of the essay. Our expert writers can take your essay from topic to outline to final copy, producing a strong model essay you can use to help you develop your own writing skills.

 

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Cold War Essay

 

The Cold War refers to the tense standoff between the United States and its allies against the Soviet Union and its allies during the middle decades of the twentieth century. The war is referred to as “cold” because the two major powers did not directly engage in armed conflict (or a “hot” war) with one another. During the Cold War, there were periods of both tension and engagement as the two superpowers tried to live with one another.

            The most important superpower confrontation was the Cuban Missile Crisis of 1962. The Soviet Union had stationed missiles in the Communist island of Cuba, just 90 miles from the United States. President Kennedy demanded the missiles’ removal, prompting a 13 day standoff that brought the world to the brink of nuclear war. (Click for more essay samples)

            On the other hand, there were periods when the U.S. and U.S.S.R. actively engaged each other, such as the negotiations between Mikhail Gorbachev and Ronald Reagan in the 1980s to limit each country’s nuclear arsenal to help make the world safer.

            The Cold War ended when the U.S.S.R. and Soviet communism collapsed between the fall of the Berlin Wall in 1989 and the formal dissolution of the Soviet Union in 1991. However, just before the end, the U.S. and the U.S.S.R. worked together to oust Saddam Hussein from Kuwait, just as they had worked together to fight Hitler in World War II, a fitting bit of closure to a war that had dominated the middle of the century.

            Essay Experts employ Cold War experts as well as experts from every other major field of study to produce some of the best academic writing and model essays on the Cold War and other topics available. If you need assistance writing about the Cold War or other topics, turn to a company whose writers hold advanced degrees in their field to give you expert advice and model academic writing to help you make the most of your next essay.

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The South East Asian Currency Crisis

 

1.0 Introduction

This study will probe at the causes and likely effects of the ongoing Southeast Asian crisis that began in the second quarter of 1997.  Though the situation is still unfolding—and surely will continue to for many years to come—it can confidently be said that this is the worst economic crisis the world has experienced since the Great Depression of the 1930s. Until very recently, most analysts had confined the crisis to Indonesia, South Korea, Malaysia, and Thailand. Some obdurate analysts even continue to suggest that the Asian ‘miracle’ is still far from over! These, and many other predictions that the crisis would result in only a short, sharp downturn with almost no impact on the major capitalist countries, have all proved to be wrong. Severe economic crisis in Japan along with economic slowdown in China, currency lows in Canada, South Africa, Mexico and many other countries, and the finale of the stumbling American economy, do clearly suggest that the crisis is endemic to the entire global system. This is an ugly and painful realization, but it is indeed reality.   Not only does it seem that the Asian miracle is surely over, but that the burgeoning global economy is headed for a drastic slowdown.

            The evidence presented in this study will fortify these arguments through a synthesis of some of the available research in the area, along with some independent conjecture where appropriate.  As a crisis ‘in progress’, it is both unwise and impossible to provide any definitive conclusions.  There are evident themes and concrete examples, nevertheless, that do help shed light on this very perplexing dilemma.  Thailand, though it is obviously a South East Asian economy, will be used as a case study to highlight the nature of the crisis.


2.0 The Reckoning of the ‘Asian Miracle’

As we know, the past year and one half witnessed a spectacular transition in East, and particularly, Southeast Asia.   For many years previous, academics, policy makers, and most commentators alike had been anticipating the shift to the Pacific Century.  As a reminder, this was to be the epoch where the developing economies of Southeast Asia and the Pacific Rim at large would dominate the global economy and marshal in a new Pacific order.  Until the events of summer 1997, it truly did appear as though this was the stage that was being set.  GDP growth in most of the Southeast Asian economies throughout the 1980s and early 1990s was proceeding at most impressive levels. While many surely did anticipate that this level of growth was unsustainable into the longer term, there were few if any who predicted that the Asian machine would grind to a halt when, or as quickly, as it did.  Indeed, within a matter of weeks the widely exalted Asian Miracle was re-coined the ‘Asian Flu’, the ‘Asian Contagion’, and a host other unpleasantries.  Different strains of this malady continue to make the news on a daily basis.  In fact, things appear to be getting worse.  And there are few economists or other right minded people who see any end to the crisis in sight. Many commentators must now agree that times will surely get worse before they get any better.

            Most individuals already know that the effects of this crisis have been alarming and widespread.  The markets of countries around the world have experienced varied effects from the turmoil—most all of them negative—and in addition to spurring the questions of ‘what happened’? and what is going to happen?, distinct questions about the overall operation of the modern global economy have been raised. All of these questions are obviously important.  But they are also difficult, controversial, and have  so far puzzled all of the world’s greatest thinkers and policy makers. No definitive answers can be found.

            Despite the uncertainty, by now it is clear to most observers that the main factor responsible for both the growth and collapse of the Southeast Asian markets was liberalised and extensive international capital flows. The high degree of international capital mobility and the expanding speculative content of a long boom growth exposed flaws in the system of macroeconomic management, first of all in the exchange rate regimes.[1]  There was an enormous inflow of portfolio and direct investment into Southeast Asian markets during the late 1980s and early to mid 1990s.   These inflows helped ignite a stock market boom, a rapid expansion of the construction industry, an escalation of real estate prices and an acceleration in money supply growth and bank lending.  Important at the outset of the crisis was that during this phase of growth, all economies in the region had their currencies linked to the US dollar.  The Thai baht operated in a narrow band around 26 baht per dollar.  Somewhat more flexible, the Philippine peso operated within the range of 25 to 27 pesos per dollar.  The Indonesian rupiah steadily decreased in value, but with such consistency that it was considered to follow a ‘moving peg’.  The Malaysian ringgit, in contrast to these other three currencies, fluctuated somewhat more unpredictably and actually appreciated against the US dollar over the period of growth.

            On the eve of the crisis, the crux of the issue for investors and speculators was fixed vs. floating exchange rates. While it is true that both of these systems have their strengths and weaknesses, applied specifically to the emerging economies in Southeast Asia, floating rates could have helped them cope with sudden drops in the price of their exports to combat surges of foreign capital.[2]   It seems intuitive that most emerging countries would have easily accepted this logic.   Yet, most emerging economies did peg, or fix, their exchange rates directly or indirectly previous to the crisis.  One reason is that a commitment to a fixed rate, “or a close cousin or clone, can help to cut inflationary expectations.”[3]  Further, many Southeast Asian governments had volunteered to use fixed rates in their efforts to promote prudent macroeconomic policies.  With fixed rates, slack policies automatically led to a fall in foreign exchange reserves.  Eventually, policy had to be tightened or the exchange rate would have to be abandoned.[4]  As evidenced by the crisis, speculators preyed on inconsistencies or anticipated inconsistencies.  Driven by the enormous force of speculative pressure, most of the South East Asian economies in crisis were forced to un-peg their currencies, which in turn caused their markets to collapse and their currencies to devalue.  This is clearly one of the main factors, if not the main factor, that precipitated the crisis.

            James Riedel (1997) argues that the fundamental incompatibility between high capital mobility, a managed exchange rate, and monetary autonomy has been called the ‘triad of incompatibilities’.  For many years, there were many that believed this otherwise impossible combination was somehow possible in Southeast Asia, “where large inflows of foreign capital have generally been accompanied by stable nominal exchange rates and low inflation.”[5] On the surface, the crisis would tend to refute this evidence.  Looking deeper into the picture, however, it does seem that this old wisdom is in fact true, at least in an historical sense. For, the primary flows of capital to Southeast Asia have been planted in foreign direct investment. Because of this, argues Riedel, “concerns about destabilising speculation and imprudent public sector borrowing are not relevant.”[6] He further suggested that “deepening and strengthening the process of economic liberalisation ongoing in the Asian developing countries is essential for minimising the risks and maximising the benefits from increased capital market integration.”[7]

            It is believed here that this line of reasoning is fundamentally flawed. While it is true that the Southeast Asian countries had unilaterally liberalised their policies towards foreign direct investment through the abolition of restrictions on entry and establishment in the early 1990s, the absence of a credible financial framework led to the creation of growth bubbles and high investment risks.   Moreover, it left governments quite unable to enact monetary policy to combat the pressures from increases in foreign capital reserves.  “Portfolio managers and foreign investors, undertaking foreign direct investment with local partners, used large sums of foreign exchange to buy local stocks or purchase investment goods or equipment.  Higher demand for local currency raised its market price above the market rate.  At the prevailing exchange rate this resulted in an expansion of the domestic money supply in all of the Southeast Asian Countries.”[8]  At the same time, the demand for government securities in these countries was minimal, thus there was little opportunity for the government to ‘sterilize’ the capital flow.  In other words, monetary policy was quite ineffective in moderating the economic boom that was taking place in the region.  The growth of the stock markets in the Southeast Asian nations made it clear to many observers that high growth could simply not sustain itself, not only in the absence of effective monetary policy, but a well defined financial framework at large. The capital that entered Southeast Asia was volatile and poorly managed to begin with. As such, it might be said that crisis was inevitable and just a matter of time. 

            Governments in the region were also unwilling, probably even unable, to use fiscal policy to control capital flows.  Three of the central governments in these countries had small surpluses or deficits.  For example, in 1995 the Philippines and Malaysia had fiscal surpluses of 0.5 per cent of GDP and 0.3 per cent of GDP respectively while Indonesia had a small deficit of 0.2 per cent of GDP. Thailand was the only country that had a relatively large surplus of 2.8 per cent of GDP.[9]  “However, in a very real sense these surpluses had developed ex post and were unplanned.  Typically, economic growth during this period was even more buoyant than expected by the government authorities and as a result tax revenues were underestimated.”[10] Governments in the region appear to have been either unaware of or disinterested in the boom-and-bust cycle that was taking place.  To be fair, however, some of the inflationary boom that was taking place fell outside of traditionally measured inflation indicators, primarily in areas of  property values and stock market prices.  To a large degree, consumer prices were based on tradable commodities which were increasing at a far more benign rate. “Had the authorities recognised the importance of monitoring non-traded goods prices as an indicator of macroeconomic imbalances, they might have considered a more active fiscal stance.”[11]

            The current account deficits in all of the Southeast Asian nations had concerned analysts for years before the outbreak of crisis.  They represented a possible sign that demand expansion had been excessive in light of the exchange rate strategy adopted by the countries.  However, for the most part, in light of a long and strong history of growth, economists generally found some comfort from the fact that external deficits had long been associated with reasonably strong fiscal positions. Indeed, Southeast Asian current account deficits resulted from private investment exceeding private savings + private domestic savings were reasonably large.  Quite reasonably, the current account deficits could be viewed as responses to high levels of international investment, fuelled simply by perceptions of high prospective profits.  The problem, however, is that “the contributions to those perceptions of implicit guarantees of various kinds (including that of a steady relationship between the domestic currency and the dollar) were rarely acknowledged.  Nor was the potential for rapid change in perceptions about prospective returns.”[12]

            Now that the crisis has been well underway for more than a year, it is very clear to see that the allocation—or more appropriately misallocation—of financial capital led to a miscalculation of the of risks in Southeast Asia.  In Thailand, for example, many have estimated that the percentage of non-performing loans had already reached 20% of GDP by the end of 1996. “Compared to the 1994 Mexican currency crisis where the same ratio registered at only 18% at its worst, the Thailand scenario was evidently more severe. Notably, this peak actually came two-and-a-half years after the  Mexican crisis.”[13] Furthermore, the ratio of total loans to GDP for Thailand was 140% at end of 1996, compared with Mexico’s 45% during its crisis.[14] To add even more to risk concerns, the amount of foreign debt accompanied by the lack of hedging made many investors uneasy.[15] In general, the crisis in most of  the Southeast Asian countries has been a direct result of years of easy access to domestic and foreign credit.  This has kept the relatively less productive industries on a upward growth trend. Such a bubble had to burst.

            As regards foreign debt, pressure by speculators mounted on the Southeast Asian  abilities to fend off speculative attacks at the beginning of the crisis.  This was  related to investors’ concerns over the countries’ foreign debt, and their limited abilities to finance it. The level of foreign reserves was not the only parameter that speculators focused on, however.  Indeed, the amount of domestic credit available, the growth of domestic debt markets and the surge in foreign direct investment over the past years were equally important factors to consider. “The lack of confidence in how the authorities [had] been managing these variables triggered  pessimism in the markets and contagion effects took place.”[16]

 

3.0  CONCLUSIONS

At the time of this writing,  the South East Asian crisis continues to escalate beyond anyone’s wildest anticipations. Many experts and analysts have been completely dumbfounded. Most reasonable economists have long given up forecasting on currencies to avoid ruining their reputations.

            More than any other emerging economies, those in Southeast Asia had experienced an extremely rapid growth of cross-border capital flows along with the globalisation of capital flows.  By and large, this can be attributed to the rapid and generally concerted attempts at deregulating capital and financial accounts without adequate safeguards.  While this had provided an enormous volume of new funding opportunities for corporations and investors in Southeast Asia within a short time, the capital was unwieldy and highly mobile.  That is, financial capital has been readily available, but dependant on highly positive economic performance. With hardly any regulation,  the moment things slowed down and become questionable, this capital was removed and found itself in more promising and stable markets. Liberalisation, instant communication and a sea of electronic data surely created wealth and growth in Southeast Asia; but, they proved equally capable of destroying it.

 

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