The Global Financial Crisis Of 2007-2008

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The Global Financial Crisis of 2007-2008 is the worst financial crisis since the 1930’s The Great Depression (Reuters, 2009). Even if bailouts of banks by national governments prevented the collapse of major financial institutions, worldwide stock markets continued to drop. Evictions and foreclosures overwhelmed the housing market while severed unemployment embraced the labor market (Baily and Elliot, 2009). This global financial crisis was responsible for the decline in the consumers’ wealth, and contributed to the great recession and European debt-crisis (LA Times, 2012). Varying opinions have been suggested to address the origin of the global financial crisis including conflicting of interests, complicated financial instruments,…show more content…
After the Russian debt crisis and the Asian financial crisis, massive credit availability existed, fueled by large inflows from Russia and Asia. The large transfers of foreign funds facilitated housing construction boom and promoted spending in consumer markets. With real estate, a bubble was also formed thanks to loose lending standards and rising real estate prices. This ensured fast obtainable loans for consumers, allowing unprecedented loan levels (Bernanke, 2009). Foreclosure became a desirable option when home prices started falling. Consumer’s wealth were drained and the strength of financial institutions were undermined. While the number of loans and defaults continued to increase, the crisis transmitted to other markets (IMF, 2009). On a bigger scale, financialization came into being: the state of financial institutions to expand while adding fragility. Deregulation and the importance of a shadow banking system was fully understood as a way to fund American economic credit (Geithner, 2008). Another reason for the global financial crisis is the activities of subprime lending. In order to please less qualified borrowers, mortgage lenders originated riskier mortgages while simultaneously relaxing underwriting standards. Combination of intense competition and shifting of power from securitizers to originators, steady mortgage standards declined and unstable loans skyrocketed rapidly (Simkovic, 2011). Major investment banks led the expansion of lending while
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