The Us Financial Crisis and Bangladesh

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Submitted By nayan51
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The US Financial Crisis and Bangladesh

The devastation left by the recent financial crisis can easily be compared with the natural disasters that visit Bangladesh so often. Lehman Brothers is no more; Merrill Lynch and Bear Stearns suffered a huge loss and forced to sell themselves; AIG, Frannie Mae, and Freddie Mac sought refuge in nationalization. USA’s last two investment banks Goldman Sachs and Morgan Stanley threw their towel and converted themselves to holding companies. The investment banking arena will never look the same again. Unfortunately the woe does not end here. American money-market fund the safest of safe investments has reported a loss (first time since 1994). If investors flee the money markets for treasuries, banks will lose funding and the contagion will suck in hedge funds and corporations.

The recent turmoil has been blamed on the sub-prime mess. These relatively unregulated financial institutions’ greed has led to their downfall. What these “hedge-fund operators, leveraged buy-out boys and whiz-kid quants” have created is a financial Frankenstein. They have created loans for borrowers, who in real life do not qualify for them because of their poor credit ratings and low incomes. The risk of these loans have been passed on to investors around the world who are eager to buy securities carrying higher yields rather than those offered by safer investments such as US treasury bonds. According to an article by Knowledge @ Wharton “Mortgage-backed securities are created by assembling thousands of loans into bundles and creating a series of bonds that pass borrowers' principal and interest payments on to the bond owners. Typically, there is a series of bonds of increasing degrees of risk reflecting the borrowers' creditworthiness. The riskier bonds pay the highest yields but are the first to lose value if borrowers fall behind in payments.” The…...

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