Gadoy, Maria Sofia B.

BSA-2B
Financial Markets

Prof. Eliza Samonte

Financial Crisis
Direction: Click the link provided and study the article about “Subprime Mortgage”. You can also
watch the video found in the same link.
Questions
What are the causes of Subprime Mortgage Crisis?
➢ Subprime Mortgage crisis triggered by poor lending practices because some banks
continue to offer loans to people who are at high risk of not paying back their loans. They
gave loans to people who are not eligible, people with bad credit score. And the banks
have bad management, since they have not verified the documents of the person applying
for a loan thoroughly, perhaps these contain false information made by the applicant.
They keep approving without proper screening to produced more mortgages and more
securities.
How it affects the financial markets?
➢ Improper lending practices can lead to shrink of the financial market. Since banks keep
providing loans to people who have a low credit score, and then these people continue
to decline, the financial system would be probably going to lose. Since the loans have not
been returned, they might contribute financial losses on the market because they keep
taking out cash, however these cash they brought out can no longer enter due to people's
defaults.

Direction: Click the link provided and watch the following videos and answer the succeeding
questions.
Questions

What are the factors mentioned in the video that worsen the financial crisis 2008?
➢ Factors that have made financial crisis worse are, first, house mortgage, making these
mortgage as a investment isn't good. Second, securitization activities turn this asset into
securities, with investors gloating up in their thinking that it was a safe bet but obviously
 not. Third, subprime mortgages, which are issued to individuals who are unemployed,
have a poor credit score that can cause a default over time. Finally, since the US housing
market price is growing and growing, people could no longer afford it, that can lead to
failure.
State one situation mentioned in the video that you think has a big impact to the financial
markets?
➢ These investors are putting their money in the U.S. housing market, since these home
prices are beginning to increase due to new lax lending requirements , people who have
house mortgages can't afford to pay their loans because it's too costly. This may proceed
to the selling of these properties, but the price of the house is high, no one can afford it.
As house supply is high, demand is low, the housing market is starting to crash. Borrowers
are defaulting as this is happens, the lenders end up with bad loan that lead to bankruptcy,
that has a big impact in the financial market.
What to happen to the financial market during COVID-19?Enumerated scenarios
1. America has cast a negative shadow over its global leadership in coping with Covid-19, so
that some investors can also mistrust them in managing the economy that can give China
a chance to become a global leader.
2. China's tough response to the crisis, even though it's the ones who brought it and the
increasing size of its financial market that makes investors believe their economy will
never collapse.
3. China's tech companies have developed digital wallets such as Alipay and WeChat Pay
that can make people pay via their phones without real cash, making the financial
ecosystem parallel.
ACTIVITY! Research a news articles about financial risk and create a “Headline Collage.”