Word: systemic
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...justifiably poor opinion of many of the actors that inhabit the financial sector, spreading the blame will only hasten the economy's decline. In order for the economy to recover, the market must recover. And in order for the market to recover, America's antipathy toward the financial system must pass. (See pictures of the Top 10 scared traders...
...credit in the economy in general. According to the New York Times, "By one estimate, as much as $1.9 trillion of lending capacity - the rough equivalent of half of all the money borrowed by businesses and consumers in 2007, before the recession struck - has been sucked out of the system." Based on these figures the government's programs have yet to reach the American public...
Before 1970, banks were content to make loans to consumers and business which remained on their books, collecting interest until the principal on the loan was satisfied. This approach made for a relatively illiquid market for the buying and selling of loans. Accordingly, this system insured that lenders were unable to sell their loan portfolios easily. Market illiquidity exposed the lender to the risk that individual loans would default or that rising interest rates would force the lender's interest cost higher than its income on the individual loan...
...purpose of Emergency Economic Stabilization Act, known as the bailout plan, was to restore stability and liquidity to the U.S. financial system. The TARP, one of the Act's driving initiatives, was intended to be a mechanism for financial institutions to offload toxic assets, in general, heavily leveraged ABS securitized by banks and held on their books. An ABS is considered a toxic asset when the value of the ABS is less than the original investment. The toxic asset has a negative impact on the bank's balance sheet which, when multiplied, reduces the banks ability to lend...
...loans. In the event of default, the junior most tranche may receive less than their regular return because they are the last tranche to be paid. In order to compensate for the increased risk, the more junior the tranche is, the higher the yield on the investment. Employing this system, loans that individually had varying credit ratings were bundled and tranches were created that were then sold in the secondary market...