The Global Financial Crisis ( Gfc )

1087 WordsAug 18, 20155 Pages
The Global Financial Crisis (GFC) began in July 2007 in the United States (US) following the decline in the countries already poor credit ratings and the subsequent collapse of the US housing market and prominent investment bank Lehman Brothers which sent a wave of fear around global economies including Australia and resulted in the largest drop in global economic activity in the modern era. (W. McKibbin, A.Stoeckel, 2009, pg 1). During the years before the crisis there was a significant increase in irresponsible mortgage lending in America. The US housing market was in melt down but the Australian had moved into a consolidation period. In the US sub-prime borrowers with poor credit ratings and the inability to repay were funded mortgage loans. In accordance with the US financial policies at the time if and when these individuals defaulted on their loan they had the option of walking away from the loan or having the house repossessed by the bank which would then sell it to reclaim the money it was owed. In theory this policy resulted in the bank reclaiming the money it was owed, however as the number of people defaulting on their loan increased the number of houses for sale increased which consequently lead to a decrease in the prices of houses therefore resulting in a shift in the housing market supply curve. Consequently the ability of banks to obtain the full balance of the loan decreased and further banks became unable to meet their own debt commitments which
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