Debt Crisis Essay Example | Topics and Well Written Essays - 1000 words

Debt Crisis - Essay Example The debt/equity ratio increased from 15:1 to 30:1 after the US Securities and Exchange Commission allowed shadow banks to borrow as much as their own risk management departments considered prudent. So while commercial banks formed only 40% of total lending, shadow banks accounted for almost 60%. Banks borrowed a ton of money, made great deals and grew tremendously rich. They then paid back the borrowed money. Investors saw this and wanted a part in it. This gave banks the idea to connect investors to home owners through mortgages. Because real estate had been doing so well, investment banks were interested in buying the mortgage. The lender agreed to sell it to them for a fee. The investment banks then borrowed heavily, bought more mortgages and collected them in a box. The bank then cut the box into 3 slices: Safe, Okay, and Risky. It packed the slices back up and called it a Collateralized Debt Obligation (CDO). A CDO works like three layers. As the money comes in from homeowners p aying off their mortgages the top tray fills first then the rest goes into the middle and the remainder goes into the last tray. If owners are unable to pay their mortgages, fewer payments are received and the last tray remains empty. For taking more risk, the lowest tray receives a higher rate of return as compared to the first tray which receives the lowest rate as it is the safest. Banks insured these slices for a minor charge called a Credit Default Swap (CDS). Credit rating agencies rated the top as a safe AAA investment and the middle as BBB. Because of the ratings, the investment banker could sell the slices to investors with different risk preferences. They made millions through this, and then repaid the loans. Since investors were making a lot more than 1%, they wanted more CDOs, investment banks wanted more mortgages and the demand for mortgages rose. They then approached the subprime market because if the homeowners defaulted on their mortgage, the lender would get the ho use which would increase in value. They started giving mortgages without requiring down payments, proof of income and any documents at all. These mortgages were Adjustable Rate Mortgages. The mortgage payments were attractively low during the initial period but they increased exponentially after the teaser period. As a result, from 2004 to 2006, the subprime mortgages accounted for approximately 1/5th of the overall mortgage market. Eventually the subprime borrowers started defaulting after the teaser period. The bank that was now the owner of the house went into foreclosure and put the house up for sale. Eventually, more houses went up for sale. Now there were so many houses for sale, increasing supply, causing house prices to fall, rather than rise. This created a problem for homeowners who continued to make their mortgage payments. The value of their houses began to decline as the number of houses for sale in the market increased. People refused to pay their mortgages. Default ra tes increased exponentially and prices nosedived. Consequently the value of CDOs which were backed by these mortgages also fell. Investment banks tried to sell the CDOs but there were no buyers. Through CDOs the problem spread to other financial markets. The problem was further compounded by CDS because sellers of CDS bought CDS from others to protect themselves. The Secondary market for subprime CDO trading halted because of lack of buyers in the market. Private financial institution refused to lend any cash

Homiletics Term Paper Example | Topics and Well Written Essays - 1000 words

Homiletics - Term Paper Example The use of ‘sea’ is highly symbolic in nature as is ‘storm’. In addition, he intends to show the movement of his mission to the Gentiles. Thus, the Gospel presents an incident that is very relevant even in the modern church. The incident provides the insight that for a believer, while crossing the sea of life, there is Jesus to still the issues that may arise on the way. The first point, according to Craddock (115), is that the Church too requires the constant protection from Jesus for its survival in the sea of modern life. Evidently, crossing the sea was a difficult task. As Rose observes, Galilean fishing boat of Jesus’ time was quite weak with oars and flimsy sails. So, one can imagine the range of fear that would arise in the mind of a sailor in front of a storm. In my opinion, the purpose of this section is to teach that the Church should be fearless in its functions as true faith knows no fears. In addition, as Craddock (115) states, the Church should seek continuous help from Jesus as it is evident that without Christ’s supports, even the Church will not be able to survive though it preaches his teachings. The first point Craddock brings in is that Jesus wanted to show his disciples the nature of his ministry. In fact, the stilling of storm was the first among the four episodes in which Jesus performs miracles. The miracles are calming a storm, healing a demoniac, healing a sick woman, and raising a dead girl. Craddock points out the fact it was immediately after this performance of wonders that Jesus appoints the twelve to preach his ministry. So, Craddock tries to draw a conclusion here that Jesus meant to show his disciples the nature of his ministry. Yet another point that Craddock brings in at this juncture is the fact that calming natural forces by rebuking is not at all different from other acts of exorcism performed by Jesus. Thus, in the words of Craddock, â€Å"rebuke† is intentionally used instea d of using touch or any other acts of exorcism to show that the purpose was not to present Jesus as one among the many exorcists who lived in that time period (Craddock, 66), but to show the power of the word of God. In fact, according to Craddock, the intention of Gospel was to show the power of the word the church was going to preach. The third point of consideration is the fact that Church too requires the constant help from Jesus to survive in the turbulence of life. Craddock (115) points out the fact that the usual posture of the church is serving others in the name of Jesus, but the Church too is receiving the benevolence of Jesus’ ministering presence; and in the long voyage across the sea of life, the Church would not be able to sustain itself without the active support from Jesus. In addition, Craddock points out the fact lack of belief and experience in Jesus, or of the Holy Spirit, would lead to the collapse of Church as it would easily go astray under the weight o f its own institutionalism or self-promoting programs. Another point of consideration is the question that Jesus asks his disciples on calming the storm. The question is â€Å"Where is your belief?† In the opinion of Craddock, the intention of Jesus was not to mention that the disciples were not believers or that they did not have belief. Nor did Jesus want to pint out that the disciples would be able to control the storm with belief. In the opinion of Cradock (115), Jesus was addressing their fear that did not mitigate even after spending so many