The Financial Crisis Research Paper Example | Topics and Well Written Essays - 1500 words

The Financial Crisis - Research Paper Example Although greatly linked to the sub-prime mortgage crisis, the causes of the 2008 recession are complex and multi-varied. This essay discusses the role of government policy, the role of mortgage originators, securitization, and moral hazards. Additionally, it presents an explanation of how the following work as well as what role they played in the crisis: subprime mortgages, mortgage backed securities, credit derivative obligations, credit default swaps; the consequences on U.S. financial markets; and the U.S. government response. Finally, it presents the authors own perspective on the financial crisis. Analysis Perhaps the most overarching consideration in terms of the financial crisis is the role of mortgage originators, securitization, and moral hazards played. Referred to as subprime lending this process is highly complex. Throughout the late 90s and early 00s competition in the housing market greatly increased. As a means of keeping pace with the increasing competitive markets mo rtgage lenders increasingly increased their borrowing restrictions to individuals with less than stellar credit ratings. This process is intimately connected with government policy as in many situations it was the government that contributed through policy and pressure to loosen up the lending standards. Indeed, some researchers linked the beginning of the housing bubble to 2003 (Krugman 2009). Prior to this period Government Sponsored Enterprises (GSEs) were required to maintain conservative lending practices. As a means of enticing individuals to enter into subprime loans, lending agencies implemented high-pressure tactics, including loan incentives (Krugman 2009). This predatory lending constituted a great contributing factor to the crisis. Additionally, the rising costs of housing prices created an environment were people increasingly believed that their home purchases would continue to rise. The exact originators of this crisis are complex. One of the most frequently cited cons iderations is that government policies that sought to increase home ownership greatly contributed to the institutional environment that would allow for such practices to occur. Indeed, since as early as the Reagan administration the government has sought policy to increase home ownership (Wright 2010). However, it wasn’t until 1995 that the government became more actively involved in the process. In 1995, Government Sponsored Enterprises, including Fannie Mae and Freddie Mac, began receiving government incentives for purchasing mortgage-backed securities (Wright 2010). These mortgaged backed securities included loans to low-income borrowers. In 1996 this process was further enhanced as the Housing and Urban Development Department (HUD) set a goal for both Fannie Mae and Freddie Mac to purchase at least 42% of mortgage backed securities that contained households with incomes below the median for the specific area (Wright 2010). An important consideration is the notion of the C redit Default Swap. These swaps were largely implemented during the period preceding the economic meltdown. The process is highly complex, as it implements derivatives in the process, contributing to the overarching considerations regarding the difficulty in regulatory processes. Essentially what was occurring was that the institutions

Institutional Framework of Federal Acquisitions Research Paper

Institutional Framework of Federal Acquisitions - Research Paper Example risk in case of unpredictability of the market prices since the burden of the extra cost will be shouldered by him and not the other contracting party but also in case of a reduction in the price, the contractor will be on the benefitting end. This therefore provides the incentive for the contractor to do the planning work not only efficiently but effectively as well observing time and being accountable for each and everything as there is fear of bearing loss. The work being contracted on will therefore be completed mostly according to the budget and time (Feldman, 2012). 2. Discuss the importance of cost reimbursement contracts in creating effective, efficient and accountable acquisition planning. Support your discussion with FAR regulations. This type of contract is important to use in case the prices or the cost of what is to be acquired is uncertain. It therefore protects both parties (the contractor and the contacting party) from risks of price increase and therefore rendering t he planning useless in the process or slowing down the project. The benefactor in this type of contract is the contractor as he is reimbursed all the costs he incurs the way specified in the contract unless they exceed the agreed upon price â€Å"These contracts establish an estimate of total costs for the purpose of obligating funds and establishing a ceiling that the contractor may not exceed†¦( General Services Administration, Department of Defense, National Aeronautics and Space Administration, 2005)† This therefore provides a motivator and an incentive for the contractor to seek only the best of the materials and hence making the planning process and the final product effective. The contractor is also accountable for each and everything since there is reimbursement to be made. The contract type also requires justification on the part of the contractor for the decisions and materials included in the planning â€Å"the contracting officer shall document the rationale for selecting the contract type in the written acquisition plan and ensure the plan is approved and signed at least one level above the contracting officer† and the final work and hence making this a very efficient and effective type of contract to be entered into by especially non-profit organizations which often have financial and time constraints and pressure of accountability to the last cent. 3. Discuss the importance of time and material contracts in creating effective, efficient and accountable acquisition planning. Support your discussion with FAR regulations. This type of contract as stipulated in clause 16.601 is one of the most cost-effective, efficient and with the highest rate of accountability for both the contractor and his officers and also for the contracting party. This is so because it avoids any wastage of time or money and materials through uncertain estimates and no party for this matter may have to bear the loss of increase in the ceiling when planning. This is so because in this contract, the contractor is paid once the work is completed and according to