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The Financial Crisis Of 2007

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The most recent financial crisis of 2007 was felt throughout the world, and brought about huge economic consequences that are still being felt to this day. Within the United States, the crisis undoubtedly resulted in a surge in poverty and unemployment, a significant drop in consumption, and the loss of trust in the capitalist economic system. Because of globalization, this crisis was felt through the intertwined global markets, affecting underdeveloped countries even more. Historical events from the past have taught us that financial crises such as the one we suffered during 2007 have occurred a vast number of times. From Mexico to Thailand, these financial crises have resulted in contagion worldwide, and have caused governments to …show more content…

Banks would lend money to these prospective home buyers without checking the amount of incoming and concurrent assets that they owned in order to see if they would be able to repay the loan. These loans were then pooled and sold off to government financial institutions such as Fannie Mae and Freddy Mac. Slowly, the homeowners were unable to repay their loans, which forced them to either sell their homes at a lower price or foreclose, between September 2008 and September 2012 alone, 3.8 million U.S. property owners lost their homes (Balaam, 196). This severely increased the mortgage loss rates for both lenders and investors; it became known as the subprime mortgage crisis. Eventually, government financial institutions whom had bought these pooled mortgages filed for bankruptcy soon after, which had a chain-effect reaction throughout the entire economic system both in the U.S. and around the world. Thus, it created what is now known as the most recent financial crisis. The U.S. government immediately issued emergency loans and tried to increase the money supply, they extended these emergency loans to over 700 banks in order to incentivize home, student, auto, and small business loans (Balaam, 194). By the end of 2008 the stock market in the United States and Europe had suffered loses of over 40%; losses that until recently have recovered (Balaam, 194). The economic crisis resurged feelings of loss and insecurities that were to some

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