Global Financial Crisis : Crisis

1213 Words May 17th, 2016 5 Pages
Global Financial Crisis
In July of 2007, the global financial crisis was initiated from the property market in the United States.
The crisis was criticized regarding to a security called sub-prime mortgages. Sub-prime mortgage is an idea created by the financial institutions to gain more profit by easily giving loans to lower income borrowers or low credit rating borrowers.
When the borrowers default the loan, the bank then have the right to take away the ownership of the property and sell it for capital gain. However, borrowers started defaulting, which put more houses back on the market for sale, but there were no buyers.
So supply was up, demand was down, home prices started collapsing. As prices fell, some borrowers suddenly have a mortgage for way more than their home was currently worth. Some borrowers stopped paying the mortgage, that led to more defaults, pushing housing prices down further.
As this was happening, the big financial institutions stopped buying sub-prime mortgages and sub-prime lenders were getting stuck with bad loans. By 2007, some well-known big lenders had declared bankruptcy. Subsequently, the failure of many financial institutions were affecting the global growth, Australia was not an exception.

Australian Government response to GFC
Having affected by the US financial crisis, Australia fall into recession. In order to minimize the negative effect of the crisis, the Australian government immediately carried out a stimulus package to heat up the…

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