Causes of the 2008 Financial Crisis

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Causes of the 2008 Financial Crisis
a) Financial crisis definition Financial crisis is defined as the financial meltdown, or in other terms as the credit crunch. A financial crisis is an economic incidence makes it hard to obtain and access the capital for use in investment. The economic crisis is an ongoing economic problem that was more pronounced in 2008 resulting in the liquidity in the global credit markets and its financial systems (Berlatsky 77). This means that there was no credit available for the investors, which adversely affects the poor countries. For the developed countries, this crisis created panic and was perceived as the most horrible in the previous years.
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This position has given it some of the substantial reasons for it to stir the economies of the world, and in the 1990s, the banks in the USA became the financial instruments for deposits of the surplus from the oil producing countries. The Real domestic product (GDP) began to contract towards the third quarter of 2008, with a gradual annual fall since the 1950s (Suter 45). The capital investments which was on the decline in 2006 matching the 1958 post war record in the first quarter of 2009, dropping by 23.2%. Furthermore, the rising tide on bad debt threatened the solvency of most of the banks. The changes in the Federal Reserve policies created panic in the inter-blending market (Gup 44). This was due to the uncertainty in which banks would survive their tenure in the lending of money to anyone leading to the censure of the economy. The investors in the stock market panicked making them send all their stock shares to a free fall. The decline in the shares significantly reduced the capital shares that greatly affected the bank regulatory system as it is based on the idea that the loans borrowed have to be a certain multiple of the bank capital (Dalton 63). This led to a massive decline in the lending system that significantly threatens the stability of the system. The significant effects of the financial crisis were more apparent was first detected in the US
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