2008 Financial Crisis Essay

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Financial Crisis Global economic crisis is popularly believed to have begun in July 2007 during the credit crunch. Loss of confidence among the U.S investors in the value of sub-prime mortgage was instrumental in causing liquidity crisis. It resulted in the U.S Federal Bank injecting capital into the financial markets. The situation had worsened by September 2008 and markets had crashed, and this raised a lot of concern. The housing market suffered greatly as home owners had taken sub-prime loans and they were unable to meet the mortgage repayments. Large number of borrowers defaulted loans and banks would be forced to repossess house and land which was much lower the original amount the banks had lent the borrowers. Banks had liquidity crisis and giving and obtaining loans became more difficult (Reinhart & Rogoff, 2009). The Housing collapse in the U.S is believed to trigger the global financial crisis but …show more content…

There is a common trend of market decline in U.S and abroad, and this creates fear that we may go back to the financial crisis (Edison, 2000). Fears of a second financial crisis within a decade have been catalyzed by the turbulence in markets. Share prices have fallen drastically, and slump in cost of oil has left crude oil trading above thirty dollars per barrel. The situation can get even worse as analysts point out as emerging market currencies are in free fall. The United States corporate sector is hardly crushed by an appreciation of the dollar (Mishkin, 2011). The economy of the United States is in a worse state than the country’s Central Bank as noted by the US Federal Reserve. There is massive credit expansion which is not a real economic activity. Central bankers have failed to learn the problems of the housing bubble that resulted to the financial crisis of 2008. The dollar has risen just like the Japanese yen in 1990s, which can have devastating

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