The Financial Crisis and Credit Crunch Analysis

3503 Words Feb 6th, 2018 14 Pages
The global financial crisis began in 2007 with the credit crunch as a result of loss of confidence in the value of the sub-prime mortgages by the US investors that caused a liquidity crisis. In an effort to curb the crisis, the US Federal Bank pumped in huge amounts of capital into the financial markets to gain back the investor confidence. In September 2008, the crisis deepened and the global stock markets came crushing. The investor confidence was lost due to the volatility in the market and the uncertainty in the future of their investments as more investors became risk averse, essentially, it is the mortgage market meltdown that triggered the global financial crisis.
Many Americans embraced the use of credit cards for their daily transactions as a result of the stability in the financial markets and could spend money in excess of their incomes due the excellent performance in the stock markets as well as other investments. They majorly relied on their investments to bridge or finance the cash gap and the financial infrastructure was perfect. Millions of investors in the US had borrowed money against their homes and the effects of the financial downturn severely hit the housing market. The ever rising value of the houses in the early years and the perceived stability in the mortgage backed securities led the banks and other lenders to believe that the risks in the prime loans could be contained and that the trend…
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