Financial Crisis : The Financial System

1304 Words Oct 24th, 2014 6 Pages
The 2007 - 2009 financial crisis was the worst financial and economic crisis since the 1929 stock market collapse leading to the Great Depression, hence it has been dubbed the Great recession. This disruption in the economy due to the lost confidence in the financial institutions undermined the stability of the financial system and led to the loss of jobs and trillions of dollars in wealth and savings for entities within the economy. The gravity of the U.S crisis influenced the global financial system leading to a worldwide crisis.

The crisis was initiated by a substantial evolution of banking systems along side the growth of the mortgage markets in retaliation to competitive forces (securities firms and insurance companies) and technological innovations which resulted in systemically large institutions dealing in complex financial instruments in the capital markets while simultaneously executing traditional banking functions such as lending- which was stimulated by government homeownership policies that encouraged home financing through innovative products at the time. The crisis manifested from an intricate interaction of government economic and social policies, advancement of the financial system, crafty business tactics, and unnecessary risk taking and leveraging by American consumers, investors, private financial institutions, and Government sponsored enterprises that destabilized the financial markets.

It can be argued that the creation of too many subprime and…
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