Bad Banking

Banking Crisis
Financial Crisis
Unethical deeds of
human being

R
Poor Economic Growth Unemployment Rate
Recession Increases

Reinforcing loop:
From “more” Financial Crisis to “more” Financial Crisis.

The more a certain human being and banks continues to do unethical things such fraud,
cheating, criminal behaviours and corruption, the more individuals will not find a job or land for
a job. In this case, unemployment rate will continue to rise. For this reason, poor economic
growth will occur and there is also what we call as “recession” – the fall in output, negative
economic growth and higher unemployment. All of these (banking crisis, unethical deeds,
unemployment rate increases and recession) will all lead to financial crisis.
 Government Polices
with regards on
Financial Crisis handling Financial
matters

B
Poor Economic Growth Employment Rate
Recession Increases

Balancing loop:
From “more” Financial Crisis to “less” Financial Crisis.

If there is strong imposition of government policies regarding financial matters and

moneys are being handled well, unemployment rate will lessen and greater employment rate will
follow. Through that, poor economic growth and recession will lessen its number too as well as
the decrease of financial crisis’s figures.
 The immediate cause or trigger of the crisis was the bursting of the U.S. housing bubble,
which peaked in 2006-2007. Already rising default rates on subprime and adjustable-rate
mortgages begun to increase quickly thereafter.

As part of the housing and credit booms, the number of financial agreements called
mortgage-backed securities (MBS) and collateralized debt organizations, which derived there
value from mortgage payment and housing prices, greatly increase. Such financial innovation
enabled institutions and investors around the world to invest in the U.S. housing market. As
housing prices declined, major global institutions that had borrowed and invested heavily in
subprime MBS reported significant losses.

The U.S. financial crisis was avoidable and caused by:

 Widespread failures in financial regulations, including the Federal reserve’s failure to

stem the tide of toxic mortgages;
 Dramatic breakdowns in corporate governance including to many financial firms
recklessly and taking too much risk;
 An explosive mix of excessive borrowing and risk by households and Wall Street that put
the financial system on a collision course with crisis;
 Key policy makers prepared for the crisis, lacking a full understanding of the financial
system they over saw; and
 Systematic breaches in accountability and ethics at all levels.

The financial crisis can be solved if, they will be ease the repayment terms on existing
mortgages holders, to reduce the flood of defaults and for closures that will otherwise occurred.
Another is to encourage expansionary monetary and fiscal policies abroad, so that the decline in
U.S. consumer spending is smoothly offset by a rise in spending in other countries. This overseas
expansion would allow the U.S. to offset the fall in housing construction by a rise in exports, and
would allow other countries to offset the fall in their exports to the U.S. by a rise in their internal
demand.