What Are The Cause Of The 2008 Financial Crisis

Many factors directly lead and indirectly caused the great recession of 2007 and 2009. The financial crisis happened because banks were able to create too much money to fast and used it to increase house prices faster than wages. They increased the amount of money and debt in the economy. Eventually, the debts became unpayable and the banks saw themselves in danger of bankruptcy where people could not repay them and limited their spending. A downward spiral begins and the economy heads into recession. Using the aggregate demand and aggregate supply model you can see a decrease in aggregated demand, which causes a recession involving a decline in price level. This caused less investment and consumer spending which then causes less demand and

In Frontline’s The Meltdown, the causes of the stock market crash of 2008 came into discussion. The topics regarding Bear Stearns, the Lehman Brothers’ and their collapse, and the huge bailout made in results to the market crash. There were great points being made on the mistakes Henry Paulson and Ben Bernanke did not view from their perspective, which in turns were the problems that made up the crash.

The recession of 2008, which we are only just starting to come out of, happened as a result of a few major factors. The primary factor was the deregulation of banks during the Bush administration. Another factor was that banks offered loans without looking into the financial stability of borrowers or businesses. Also, credit unions, savings and loans, and banks entered into competition with each other. The Security and Exchange Commission, S.E.C., reduced requirements so that banks could pile up debts.

Many people today would consider the 2008, United States financial crisis a simple “malfunction” or “mistake”, but it was nothing close to that. Contrary to what many believe, renowned economists and financial advisors regarded the financial crisis of 2007 and 2008 to be the most devastating crisis since the Great Depression of the 1930’s. To make matters worse, the decline in the economy expanded nationwide, resulting in the recession of 2007 to 2009 (Brue). David Einhorn, CEO of GreenHorn Capital, even goes as far as to say "What strikes me the most about the recent credit market crisis is how fast the world is trying to go back to business as usual. In my view, the crisis wasn't an accident. We didn't get unlucky. The crisis came

Similarly, the Great Recession was due to consumer spending cutbacks and a drop in demand for the establishment of new housing. In the two decades previous to 2008, the American growth rate was very high. Their household needs also became very high, which made demand increase. Spending was at a high. However personal income was decreased. The consumers then had to borrow money from the banks. This gave the consumers debt. So, when the house prices rose, banks stopped loaning money to people and the people decreased their spending. This happened because the people were not able to pay the banks back. People also cut back on buying or making new houses, so household demand dropped. Many say that this decrease caused the Great Recession. Housing was one of the main subjects that many believe, caused the Great Recession. “Subprime” mortgage availability and low interest

The “Great Recession of 2008" hit The United States and the rest of the world with a force not seen since the Great Depression less than a century ago. December of 2007 saw an unemployment rate of 5.7% as the economy was rolling forward on the back of the high-profiled housing market funded by aggressive loans to consumers with sub-par credit. (National Bureau of Economic Research) This created a proverbial “House of Cards” that fell apart that same month and over the course of two years; the unemployment rate would nearly double as The United States would lose over 8 million jobs according the National Bureau of Economics. The cause of The Great Recession can’t simply be quantified to just one person, agency or company. However, in the broad

The 2008 financial crisis had multiple causes but the most outstanding to me is the passing of the Gramm–Leach–Bliley Act. This act repealed Glass – Steagall which removed the safeguards that came between commercial and investment banks. It destroyed regulation between the two and gave unprecedented “innovation” which allowed millions of Americans to purchase homes they couldn’t really afford. This created the American housing bubble that eventually popped do to citizens being unable to pay for their new homes. The intial burst of the housing bubble resulted in the foreclosure of 860,000 homes in 2008. Another entity at fault for the recession would be the credit rating companies. They provided the means to the consumers to take out mortgages

The Great Recession was an economic behemoth the likes the United States had never seen before since the Great Depression. In fact, the Great Recession of 2007-2009 was an unmitigated disaster for the US and world economy, its effects still lasting to this day. The Great Recession was spurred by an influx in subprime mortgages and loans. Normally, banks lend money to those they know are capable of paying it back with interest; however, in the early 2000s, banks took advantage of the unregulated sector of subprime loans, creating a substantial housing bubble at the cost of considerable profit. Soon millions of low-income and middle-class Americans were buying homes for much more than their normal income could pay for, but with ever increasing

The Great recession occurred in America in 2007 when the economy began to decline. The cause of the recession can be contributed to many different sources, but it is clear that the main causes of the recession were deregulation, the “housing bubble”, corruption of “gatekeepers”, derivatives, the strategies of K street markets, and private debt.

“The Great Recession of 2008 didn't just happen in one month. It took years to correct the easy-money policies and lax standards of Wall Street”. Corruption in Wall Street ran rampant in the months leading up to the recession. Many brokers on Wall Street poorly informed customers, and tied them into mortgages they simply could not sustain. Corporations could get away with corrupt actions due to a lack of regulation on business practices, specifically instituting regulations on big financial corporations. At the same time, the government bailed out multiple large-scale businesses, as an attempt to preserve struggling American industry. This ultimately proved not to be beneficial. As our mother remarked, “I did have an idea that we were going to be heading for at least a contraction in the market. But, I had absolutely no clue of the magnitude of it, and blindsided me a bit. I feel like it was protracted because of all of the bailouts that were offered… It might have had a more natural outcome if some institutions were allowed to fail…”. Ultimately, government efforts to prevent an impending recession were concentrated in areas that would only magnify its

Levin, Carl, and Tom Coburn. United States. United States Senate. Wall Street and the Financial Crisis: Anatomy of a Financial Collapse. Washington: Committee on Homeland Security and Governmental Affairs, 2010.

In 2008, the National Bureau of Economic Research publicized that the U.S. Economy had entered into a recession. The overall agreement of what was the primary cause of this recession was the credit crisis from the bursting of the housing bubble. This lead the U.S. into the worst recession in over sixty years (Holt).

The Recession of 2008 was caused by two major faults: the use of subprime lending and changes in banking culture leaning towards self interest within the banking industry.

The main cause of this worldwide economic contraction was the credit crunch in 2007/2008. In the United States, mortgage lenders received incentives to sell mortgages, regardless of the income and credit score of the individual receiving the loan. This lead to an influx of loans being sold that were likely to be defaulted on at a later date. These subprime mortgages proved to be very profitable for the mortgage companies; thus, in order to continue selling these mortgages, they consolidated the debt and sold it to financial intermediaries. Therefore, the loans were no longer being financed through the traditional banking model.

The 2008 financial crisis can be traced back to two factor, sub-prime mortgages and debt. Traditionally, it was considered difficult to get a mortgage if you had bad credit or did not have a steady form of income. Lenders did not want to take the risk that you might default on the loan. In the 2000s, investors in the U.S. and abroad looking for a low risk, high return investment started putting their money at the U.S. housing market. The thinking behind this was they could get a better return from the interest rates home owners paid on mortgages, than they could by investing in things like treasury bonds, which were paying extremely low interest. The global investors did not want to buy just individual mortgages. Instead, they bought