Financial Crisis : Fiscal Crisis

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Financial Crisis: 2008-2009 In early 2000s, most private and public budgets in the U.S. were funded through local and sovereign debts. In this regard, staggering mortgage industry, weak fiscal policies, and unscrupulous financial investors principally contributed to the 2008-2009 financial crises. Due to surging inflation and accumulated interests, most borrowers failed to payback their loans due to continued bankruptcy. Consequently, interest rates in various countries were adjusted to balance the demand and supply of the circulating money. In economics, any increase in the price levels concurrently increases demand for money, which means that supply and demand for money did not balance in various economies during the 2008-9 crises.…show more content…
The situation led to the surging inflation cases in the country, lack of capital finances to support new business startups, recession/depression, and unemployment since most companies laid off their employees after closing down their businesses. Consequently, the situation spread all over the word with most governments forced to intervene and bailout some of their financial institutions to manage the crisis. In the American context, what worsened the situation was high expectation of the mortgage lenders who expected huge profits from their clients after full recovery of the loans. Events In 2007, housing crisis deepened drastically in the US markets. Consequently, several financial banks and hedge funds, which had largely invested in subprime mortgages, were left with valueless assets in the wake of foreclosures. In fact, the damage had spurred the echelons of Wall Street and the economy could no longer afford the subprime loans. In April 2007, New Century Financial, which is a subprime mortgage lender, filed a bankruptcy court protection case so that it could get reprieve from its burdening loans. In July 2007, Investment Bank Bear Stearns liquidated two hedge funds spent on precarious securities guaranteed by subprime mortgage loans (Bernanke, 2013). American Home Mortgage Investment, a security company specialized in adjustable-rate mortgages, also filed a case for bankruptcy protection. This
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