In addition, Kok (2011), in his study found that, in 2012, the US economy is still in weak growth even after two quantitative easing exercises amounting to USD 3 trillion. The 2008 global financial crisis is actually started from the plunge of US sub-prime mortgage industry and spread into the world financial and banking sector. Reavis (2012) in his study state that, the main contributor to the financial crisis was the heavily financial liberalization and prosperity that took place before the crisis and powerful banking oligarchy. This took uncalculated risk to gain huge profits which might threaten themselves and the mass majority. On the other hands, Koltz (2009) proposed that the financial crisis was happened due to the systematic crisis of a particular form of capitalism that namely as neoliberal capitalism.
It pointed out that failure in different financial institutions including the Federal Reserve accelerated the crises. Lehman brothers; one of the three largest investments banks in the United States has been cited in the financial crises in 2007. The bank went bankrupt and it had to be sold in September 2008 (Currie, 2010). The other two banks Morgan Stanley and Goldman Sachs had to become commercial banks where more regulation was done. The collapse of large and significant financial institutions like the Lehman Brothers propagated the economic crises.
The Global Financial Crisis and its Impact on EU Governments Summary Despite the efforts of the Federal Reserve and Treasury Department to prevent the collapse of the U.S banking system, the Global Financial Crisis (GFC), also known as the Financial Crisis of 2007-2008, since the Great Depression in the 1930s, was considered to be the largest and most severe financial event, which reshaped the world of finance and investment banking. During this period, Millions of Americans lost their jobs; millions of families lost their homes; and good businesses shut down . The main cause of the GFC was the Subprime Mortgage, high risk mortgage lending, of financial institutions, such as investment banks in the United States. However, there were other factors, which contributed to the GFC, such as regulatory failure, inflated credit ratings, and investment bank abuses. As a result, the 4th largest bank, Lehman Brothers, filed for Chapter 11 bankruptcy, stock-broking firm and Merrill Lynch, an investment bank, were taken over and Goldman Sachs and Morgan Stanley sought banking status in order to receive protection from bankruptcy .
According to USA Today, “Housing crisis deepens. Banks and hedge funds that invested big in sub prime mortgages are left with worthless assets as foreclosures rise. The damage reaches the top echelo... ... middle of paper ... ...ate wealth (GovermentStatSheet). Since then the American political economy has grown, strengthened, and reinforced the future since the learning period of 2008. The great recession is proven to be a point in time when financial funds didn’t exist but the United States government has analyzed and can now predict identical causes and annihilate them before they arise again.
Nevertheless, the spill-over effects of the failing US mortgage market sealed the fate of the company when the money markets that Northern Rock had depended on for years crashed at the start of August 2007. The sub-prime mortgage market crisis started in the United States in the fall of 2006 and took hold as a global financial crisis by July 2007. Due to innovations in securitization, the risks from these sub-prime mortgages had to be shared more broadly with investors which essentially led to the ripple effects in the world-wide economy. The mortgages are generally repackaged into a variety of complex investment securities which are bought by institutions to diversify their portfolios. In the case of the U... ... middle of paper ... ...ultimate fate of Northern Rock is still undecided although a consortium led by the Virgin Group is the bank’s preferred bidder.
By 2008, due to the failures of large financial institutions, there were severe liquidity problems within the US banking system. When the housing bubble peaked in late 2007 the values of securities linked to U.S. real estate pricing began to plummet (Stiglitz 55). This was a critical hit to financial institutions across the globe. Questions began to arise amongst consumers and members of government alike in regards to the solvency of banks due to poorly performing loans and mortgages, which in turn led to declines in the availability of credit. The complete loss of investor confidence impacted stock markets globally.
Henry set up a general store in Alabama in 1844 and was later joined by his brothers. In 1850 they set up the merchant bank in New York after having made money in railway bonds. So what went wrong? Compiled by Rediff Business Desk Lehman Bros, which till June 2008 had not reported a quarterly loss even once, had earlier survived many an economic crises, like railroad bankruptcies of the 1800s, the Great Depression in the 1930s, and the collapse of Long-Term Capital Management in the 1990s. Thus the collapse of the giant investment bank came as a major shock for the entire world markets that plunged after Lehman filed a Chapter 11 petition with US Bankruptcy Court in Manhattan.
The U.S. financial crisis of 2007–2008 is considered one of the worst financial crises since the Great Depression of the 1930s. It almost made large financial institutions collapse and stock markets declined in a dramatic way around the world. The consumer wealth declined in trillions of U.S. dollars and played a significant part in the failure of key businesses and declines in economic activities. All these factors led to the 2007–2008 global recession and played a major role in contributing to the European sovereign-debt crisis. The easy availability of credit in U.S, Russian debt crises and Asian financial crises of late 90’s showed the way to a housing construction boom in the USA.
4). The recession brought immense changes in terms of loaning policies and the decrease of 37% was recorded when it comes to the loans to large corporations and institutions (Ivashina and Scharfstein, 2010, pp. 319). This dramatic change is labeled as credit crunch – reduced ability of banks to give credits. Even the very phrase credit crunch is not new, it dates to the period of Great Depression (Mizen, 2008, pp.
It has left individuals and companies facing potentially higher interest costs, or struggling to get access at all.” The credit crunch can occur for several reasons such as; “sudden increase in interest rates, direct money controls by the government or drying up of funding the capital market”, (www.thismoney.co.uk). According to the Times Online, “years of lending increased a huge debt bubble; people were borrowing ‘cheap money” and properties. The crunch began in summer 2007, where lending to low-income Americans opened a wave of financial problems. As a result banks were not lending money to consumers and one another. Furthermore, it became a worldwide phenomenon; “the way the debt was sold on to investors gave the crisis global significance.