Impact of Financial Crisis on Gulf Area

Background

The global financial crisis that was experienced in 2007/2008 affected many nations of the world. Some countries such as America and most European countries were hard hit since they were directly affected by the crisis. Other countries especially those in Asia and Africa were not adversely affected as they were not directly hit by the crisis. This crisis started in the United States after the housing bubble busted. Although the bursting of the housing bubble was the main cause of the crisis, there were a series of events that preceded it.

One event that indirectly contributed to this crisis was the Russian debt crisis as well as the Asian financial crisis that took place in 1997/1998. These two events made many investors to divert their financial investments to other countries that seemingly looked stable. One of such country was the United States. The influx in the foreign funds increased the liquidity in most financial institutions. This made the financial institutions to institute friendly terms of credit so as to encourage borrowers to take loans. Due to the easy access to loans, many consumers became loaded with debt and consumption at this time was largely based on credit money.

With increased access to loans, the cost of housing began to rise. This attracted many investors into the real estate business. Many potential home owners also borrowed to build their own houses. Most financial institutions entered into financial agreements such as Mortgage Backed Securities to help people own homes (Mayes, 2009). After some time, the prices of houses began to fall. The rate at which their prices plummeted was so high that within a very short period, their value was far below the value of the mortgages. Many financi...

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Conclusion

The gulf area is one of the many regions in the world that were indirectly affected by the 2007/2008 global financial crisis. Although this crisis occurred in the United States, its ripple effect affected many countries. The crisis resulted in drastic fall in the global oil prices and these nations were adversely affected since their economies were dependent on oils. The crisis also affected other markets such as labor market, financial market, commodity market among others. These countries were however in a way cushioned from the impacts of the recession due to the sound fiscal policies that these countries are known for.