The NINJA that broke the financial system: An analysis of the financial crisis 2007-2009

Abstrakt

This thesis examines the financial crisis of 2007-2009, arguing that unsustainable real estate prices and too lenient lending policies created an environment of excessive leverage and irresponsible private consumption. The range of new structured credit products is discussed in relation to the increase in mortgage lending. Structured products such as asset backed securities and credit default swaps are discussed, and their effect on the crisis is analysed. Focus is on those financial institutions and regulatory/governmental bodies that made it possible for the financial industry to expand its product range and to attract investors on a global scale, and will in particular look at the role of the Federal Reserve, government sponsored entities and rating agencies. The thesis also provides a comprehensive examination of events, which happened during the crisis, allowing an illustration of the magnitude of the crisis and also an analysis of the most significant events using financial theory. The author concludes that two factors play a vital role in explaining the crisis, namely the lack of regulatory supervision and the presence of asymmetric information.