Econ Crisis

The Global Financial Crisis, also known as The Great Recession, broke out in the United States of America in the middle of 2007 and continued on until 2008. There were many factors that contributed to the cause of The Global Financial Crisis and many effects that emerged, because the impact it had on the financial system. The Global Financial Crisis started because of house market crash in 2007. There were many factors that contributed to the housing market crash in 2007. These factors included: subprime mortgages, the housing bubble, and government policies and regulations. The factors were a result of poor financial investments and high risk gambling, which slumped down interest rates and price of many assets. Government policies and regulations were made in order to attempt to solve the crises that emerged; instead the government policies made backfired and escalated the problem even further.

The 2007-08 financial crisis that started in the US is often dubbed as the housing bubble. Although, the burst of the housing bubble is the tipping point of the crisis, the true causes have building up slowly and steadily for almost over a decade. The burst of the housing bubble was merely a reflection of the built up baggage. This crisis is a classic example of how dangerous derivatives can turn out to be if not properly managed.

The vulnerabilities in the financial system transformed into a recent crisis. The decline in housing prices let to very severe forms. There are several reasons, which affected the severity of it, including the excessive debt taken on borrowers, reliance on short term fundings, banks didn 't have an efficient system to monitor the risks, the international housing bubble and the crisis in other countries let to acquiring safe dollar assets, the lending standards were inadequate, financial institutions did not have serious supervision by any financial regulators, and people were too optimistic about the economy.

Just after ten years of Asian financial crisis, another major financial crisis now concern for all developed and some developing countries is “Global Financial Crisis 2008.” It is beginning with the bankruptcy of Lehman Brothers on Sunday, September 14, 2008 and spread like a flood. At first U.S banking sector fall in a great liquidity crisis and simultaneously around the world stock markets have fallen, large financial institutions have collapsed or been bought out, and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems. (Global issue)

Since the 1980’s the rise of the U.S. financial sector has led to a series of increasingly dire financial crisis. Each one of them causing more damage while the industry has made more and more money.

Since the financial crisis is the value of financial institutions or assets in one country or several countries drops rapidly, and it can affect the stability and development of the relevant country or region even the world economic. The causes of this situation should be well studied to prevent the recurrence.

The global financial environment has over the last decade experienced enough changes as can be witnessed from the key economic indicators. These changes have significantly impacted various stakeholders such as financial markets, money markets, capital markets and the general micro and macro economics players. Countries have been hit by recession and

The financial crisis of 2007-08 was also known as subprime crisis or credit crisis. Since the bubbles of real estate market in America came into surface on August 9, 2007 investors were losing their confidence on subprime mortgage assets and the liquidity risk followed behind. Even though the central banks of many countries tried to turn around the situation by injecting huge amount of capital to the financial market, the financial crisis still broke out and spread to Europe and other parts all over the world especially on the backing sector.

In 2008, the world experienced a tremendous financial crisis which rooted from the U.S housing market; moreover, it is considered by many economists as one of the worst recession since the Great Depression in 1930s. After posing a huge effect on the U.S economy, the financial crisis expanded to Europe and the rest of the world. It brought governments down, ruined economies, crumble financial corporations and impoverish individual lives. For example, the financial crisis has resulted in the collapse of massive financial institutions such as Fannie Mae, Freddie Mac, Lehman Brother and AIG. These collapses not only influence own countries but also international area. Hence, the intervention of governments by changing and expanding the monetary and fiscal policy or giving bailout is needed in order to eliminate and control enormous effects of the financial crisis.

An economic event intertwined with credit crunch is the U.S. subprime mortgage crisis. In 2007, the subprime mortgage crisis dealt a huge economic blow to America and then had a great impact on the world economy. Although several actions, such as lowered the target for Federal funds rate and the discount rate, were taken, the crisis still had severe, long-lasting consequences, which makes the world economy still in a slow recovery so far. The credit crunch of 2007 was triggered by several factors. Analyzing the cause of credit crunch can help us reduce the probability of it and then prevent financial crisis in the future.

Financial and international capital account liberalization and the removal of barriers for investment opportunities have transpired globally since the early 1970s. When countries receive large amounts of foreign capital, an instant effect is an overheating economy due to an expansion of aggregate demand. As this inflow arrived into the United States, investment banks such as Goldman Sachs saw profits rocket. “The size of the U.S. financial sector more than doubled, from 4 percent in the mid 1970s to almost 8 percent of GDP by 2007” (Reinhart and Rogoff 2011). The frontrunners of the financial sector (who miscalculated the hidden risks involved in their own activity) were convinced that financial modernism was an important factor that allowed the U.S. to borrow such large amounts of money from abroad.

“The American subprime mortgage crisis that occurred in July 2007 led to the crash of the global stock market” (Yun, Chan 2010). This statement shows that not only was the U.S market was negatively affected by the mortgage crises, other economies across the globe also felt the shock.

Clarke (2010) explains that the recent turmoil, bank-runs, global equities sell-off and the “credit crunch” demonstrate

The most recent financial crisis of 2007-2008 was a financial incident that stemmed from a collapse of financial institutions in the United States. By fully understanding how the crisis occurred from the individual consumer, the effect the crisis had on the BRICs can be fully gauged. Most asset classes

The subprime crisis that emerged in the US housing mortgage market in 2007 Snow balled into a global financial crisis, and a global economic recession followed. The Financial landscape has changed significantly after the collapse of Lehman Brothers in September 2008. An important lesson, post-September 2008, is that irrespective of the degree of globalization of a country and the soundness of its domestic policies, a financial crisis could spread to every economy.