Global Financial Crisis Essay

By examining the nation’s economic struggles during this time period (2007-2009), it will conclude that the current macroeconomic situation deals with unemployment, which is a direct result of the recession. It can be argued that the economic hardships of the great recession began when interest rates were lowered by the Federal Reserve. This caused a bubble in the housing market. Housing prices plummeted, home prices plummeted, then thousands of borrowers could no longer afford to pay on their loans (Koba, 2011). The bubble forced banks to give out homes loans with unreasonably high risk rates.

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.

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 problems arrived over a period of time from 1995 to 2008. The first and main problems that lead to the economic collapse was sub prime mortgages. Sub prime mortgage is a certain kind of loan granted to people with poor credit histories, who which wouldn’t usually be qualified for conventional mortgages (Investopedia). These sup prime mortgages would backfire on banks across the nation resulting in huge financial loses. According to USA Today, “Housing crisis deepens.

If anything comes from moral hazards using fiscal and monetary policies would be higher debts, which in one day create more jobs lost, more homelessness, poor education and more healthcare expenses. The Great Recession of 2008 in North America was an enormous economic downturn causing the real GDP to fall at a nearly six percent annual rate (Pettinger, 2013). In the end, the recession recovered because policymakers enacted the monetary and fiscal policies.

The 2007 Financial Crisis is a result of two decades worth of failed economic responsibility that ranged from the housing market to business fronts. The housing market in the 1980’s- 1990’s was the start of the modern economic recession and financial crisis creating what is now know as the Housing Bubble. Economic Recession is when there is a significant decline in the economy lasting longer than a few months; while a financial crisis is defined as, when the value of multiple financial institutions and other valuable assets for said institutions decrease at a surprising rate. The prospective cause of the 2008 Financial Crisis is the dramatic drop in the housing marker and the great risk of economic failure of major financial institutions around the world. The downturn of events began when governmental funds had to be used to bail out large investment bank Bears Stearns in March of 2008, followed by the complete failure of Lehman Brothers in September later that same year.

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. According to Krugman (2009), the cumulative effect of the financial crisis had both reduce customer confidence and investment opportunities worldwide. Almost all countries face negative growth in that year. The Asian economy was heavily affected due to the high dependent on the global economy. According to Damodaran (2012), Malaysia is the world 17th largest trading nation was mainly ... ... middle of paper ... ...othing and accessories.

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.

Introduction During the period 2007 to mid-2009, the global economy took a hit by a severe financial crisis. In September 2008, the world’s largest insurance company AIG has collapsed, while Lehman Brothers, one of the most venerable and biggest investment banks, was forced to declare itself bankrupt. The stability of the financial enterprises mainly in Europe and US were in jeopardy. Goldman Sachs, Morgan Stanley, Merrill Lynch were all way down. Both Royal bank of Scotland and Citigroup are now under state ownership.

Housing inflation were inversely related to both foreclosure and delinquency rates. The rates dropped drastically over the years which led to increased house prices that almost collapsed the mortgage programs. As a result of the crisis in subprime mortgages, the Troubled Asset Relief Program (TARP) program was introduced in the beginning of October 2008 by the United State government that enabled the purchase of equity and as... ... middle of paper ... ...s that had surpluses back to the country. Works Cited Kaminsky, G., & Reinhart, C. (1999). The Twin Crises: The Causes of Banking and Balance of Payment Problems, American Economic Review, 89, (3), 473–500.