The Cause of Global Financial Crisis

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

The U.S. economy experienced a deep recession in years of 2008 through 2009. A huge factor in this was the number of large financial institutions that failed. Also, the stock market declined significantly which can be contributed to the bailout plan that was passed by our government. Third, spreads on many different types of loans over comparable U.S. Treasury securities has expanded significantly (Chari, Christiano, & Kehoe, 2008). The financial crisis is the result of the collapse of the housing bubble in the U.S., which can be seen as the starting point of a crisis in the global economy afterward.

There is no doubt that subprime lending was a major cause of the Recession. It was a tactic used by investment banks in order to get more money from unsuspecting homeowners. However, lenders found out that most of the people who were qualified to have a mortgage already had one. In turn, the lenders had to lower their credit criteria for people to take out a loan on a house. This is how the term subprime lending came to be in the financial world. As a result of subprime lending, the investors were able to make millions off of these mortgages. “ Many American homeowners bought houses they could not afford, signed into mortgage agreements they could not understand or which were misleading and took equity out of homes as if they were cash machines” (Cushman 1).

The Great Recession began in late 2007 and quickly spread throughout the world. The downturn provided continuous high unemployment, a spreading foreclosure crisis, and minimal consumer spending.The crisis threatened the viability of financial institutions with deep exposure to defaults and foreclosures (Love & Mattern, 2011). Bank after bank were either closing down or merging just to stay afloat. This led to banks reducing their lending which made it both difficult and expensive to borrow money. This fall in consumption and investment led to businesses decreasing labor which further hurt GDP and unemployment saw an all-time high. This effect was not only felt in the United States. Countries that had exposure to the US also suffered from the

The United States at this stage was the world financial centre and sole superpower in the world (arguably). Once again the US was the creator of the crisis.

The 2008 global financial crisis caused by the US mortgages market and extended to the whole world. Some banks and companies has forced to bankruptcy in this accident and some layoff employees, which increased the unemployment percentage, decreased the wealth and income of consumers and lowered the demand of products, so that the companies would layoff more employees, which becomed a vicious cycle. The accident affect not only the financial industry, but also other industries. After the accident happened, governments released polices to contain it, such as the Dodd-Frank Act. Different countries has fall into recessions in different

All of these components manufactured the financial crisis. Right after the crisis, banks were strict on lending to households and businesses. The decline in lending caused prices in these markets to trickle down, which means those that have taken a lot, had to contemplate on the rising prices and had to give up their estates in order to repay their loans. House prices became cheaper and everything burst. This lead banks to panic and cut their lending even more. A downward spiral resulted from all of this, and the economy went into recession.

The financial crisis of 2008 hit the American economy and the world economy as well. It cost tens of millions of people their savings, jobs, and their homes. For decades the American financial system was stable and safe, but it changed. The financial industry turned its back on society; it corrupted the political system, and plunged the world economy into crisis. It was not an accident; it was caused by an out of control industry, a greedy industry. The crisis has made more damage to society while the industry has made more money.

Despite its impressive size, the strength of the US economy is currently shaking as a result of the economic crisis commenced in 2007. Whereas the country only entered recession in 2008, the economic crisis has in fact revealed some problems that already existed within the country, such as unstable and insufficient financial policies, dangerous lending practices or insufficient fiscal regulations. The recession however deepened as the country witnessed the burst of the real estate bubble, the deflating property prices, the failures of investment banks and the contraction of credit

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.

There are many different views as to what brought on the financial crisis of 2008. One of these views are that of global imbalances. On the one hand, the United States have an extremely large current account deficit. On the other, there are countries, especially oil-exporting economies and China in particular, with large current account surpluses. The concept of global or external imbalances is often seen as a synonym for this situation.

Besides, low interest rates and large inflows of foreign funds created easy credit conditions for years before the crisis and that simulated the boom in housing construction (Steverman and Bogoslaw, 2008). Moreover, easy credit and money inflow greatly contributed to U.S housing bubble and the rise of house’s price.

This financial crisis mainly resulted from some domestic macroeconomics problems and immature national financial markets, influences of international foreign markets, and crony capitalism between government officials and big-business owners and international gamblers’ actions. The high inflation rate in Asian countries rises the price of goods, and when their currency exchange rates pegged to US dollars, the exports became more expensive. The domestic production decline, unemployment rate increases. Foreign countries refuse to lend loans, force them to repay and devalue to become more competitive. Immediate ‘speculative attack’ lead speculators suddenly purchase large amount of foreign currency, as the foreign currency value increase more, the domestic money holders lose more. The Asian financial marketplaces were becoming dependent on foreign capital, foreign investors motivated to copy peers, when some investors change investment decision, it can produce insecure, dramatic, destabilizing swings of inflows and outflows. In the developing countries, it 's common some government officials give relatives who own major banks or firm low-cost loans or bail them out when their firms’ in trouble. Usually the major banks and firms didn’t care on investing on high risk projects then take earning, but push losses to taxpayers when it happens.

4. Initiation of global financial crisis: The entire financial crisis since 1930 has proximity to one another overpriced stocks, trouble-free credit expansion, insatiability of power & money and substantial fraud(Yeoh, 2010). However, 2008 economic catastrophe resembles that markets are more closely linked to each other and systemic risk can be originated from many market resources and can be transferred very quickly due to lack of proper corrective measures(Kindleberger et al., 2005). The crisis mainly begun in January 2007, when US market reported losses in mortgage market and credit exposure due to certain delinquencies, especially in sub prime loan category. Stage 2 of crisis came up with fast deflation of housing value in slowing world economy, and it damaged property market in UK and Eurozone. Northern Rock one of the most renowned UK mortgage bank collapsed because of the knock on effect of US mortgage bubble bursting1(Gerson LehmanGroup, 2009). Aftermath NR collapse the banking credit spreads2 reached over 175 points for AA-rating companies. This showed the way of entire shutdown of asset securitization3 markets. Stage four of the crisis begun in September 2008

companies and investments in financial instruments. Fourth, the currency turmoil affects U.S. imports and exports as well as capital flows and the value of the U.S. dollar; the U.S. deficit on trade was rising as these countries import less and export more. Fifth, the crisis is causing economic turmoil that is exposing weaknesses in many financial institutions in Asia; some have gone bankrupt. The economic problems of the troubled Asian economies are adversely affecting the United States, Japan, and others.