The 2008 Financial Crisis

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.

Ocaya (2012) state that the credit crisis is a financial market or economic meltdown of borrowing the funds to the borrower and cannot get back, it evaluated by severe shortage of money or credit bring accumulation of bad debts, defaults and falling financial institutions among others. However, the experts and economists are unclear as what form a credit crisis. The Wall Street defines a credit crisis as a “period during which borrowed funds are difficult to get and, even if funds can find, interest rates are very high”. Credit crisis mostly began in 2007. The effect of the credit crisis has brought fall down on the housing market in some country resulting in foreclosures and unemployment.

The macroeconomic factors can be summarized as the global financial imbalance and the long period of low real interest rate. While the macroeconomic factors include five aspects, which are consumers’ false confidence, high levels of corporate leverage, compensation schemes, rating agencies’ distortion and limitation of risk measurement tools and regulation. In the UK, government rescued the economy involves tax cuts, increasing government spending, lower interest rates and injects money supply, etc. however the results was not enough to rescue depressed economy from recession at the begining, since the impact of financial crisis on the global market was extremely. However, after the analysis of financial performance to 2009, now british economy became more stabilized and returned to pre-crisis level.

He has described how the financial crisis in 2008 was similar to the 1929 Great Depression, where one of the causes of the crash was the development of new financial instruments that were treated as making the investments ‘riskless’. He has described the "The Global Minotaur" (a Greek mythological figure) as a metaphor that tells the story about "what went wrong in 2008 and why the world economy is finding it so hard to rediscover its poise after the debacle in 2008. "(Johnson, 2013). Yanis (2011) has accused the human behaviour and psychology as the main reason behind the financial crisis. But he felt that there was something else for the crisis to emerge other than the greed, new financial instruments and regulatory collapse.

The financial crisis in 2008 that led to a crisis in the banking sector, and which nearly led to a complete collapse of the economy globally, was not only caused by changes in the regulatory, regulation and legislation oversight, but also fiscal and monetary policies. Many believe that, expansion of excesses monetary and irresponsibility of some of the government agencies led to the crisis. According to reports by Taylor (2009), excesses monetary policies were the main cause of the 2008 financial crisis. He reports that, in 2003-2005 the federal reserves held its interest rate target below the well known monetary rules that state that historical experiences should be the base of a good policy. He says that, Federal Reserve tracked their rates according to what worked better in the earlier decades, instead of lowering the rates in order to prevent the crisis.

Every country has its ups and downs, unfortunately, countries having to deal with financial problems which tend to cause a tremendous effect on the nation as a whole. Financial crisis plays a huge role in countries going into a recession, and being unable to meet the demand for money. Sadly, developing countries are facing financial crisis the hardest, for example, countries such as Haiti, South Africa, and Afghanistan are just some of the countries who have trouble with financial issues for decades. Furthermore, developing countries are more than likely to face financial crisis due to not making enough trades, which depends on the amount of income that comes in and out of countries. Today, financial crisis has gotten worse in many developing

introduction The 2008 financial crisis led to a sharp increase in mortgage foreclosures primarily subprime leading to a collapse in several mortgage lenders. Recurrent foreclosures and the harms of subprime mortgages were caused by loose lending practices, housing bubble, low interest rates and extreme risk taking (Zandi, 2008). Additionally, expert analysis on the 2008 financial crisis assert that the cause was also due to erroneous monetary policy moves and poor housing policies. The federal government encouraged the expansion of risky mortgages to under-qualified borrowers. Congress pushed for the support of affordable housing through extended procurement of non-prime loans for applicants with low income (Zandi, 2008).

During September 2008, a worldwide financial crisis erupted and was succeeded by the most severe global economic recession for decades. Governments in the euro area intervened with a extensive mixture of emergency acts to stabilise the financial sector and to soften the effect of the consequences for their economies. This paper examines the start of the Great Recession, EU governments’ general response to the economic crisis and their ultimate effects. This paper aims to draw a conclusion on whether or not fiscal policy, implemented in many European countries during the Great Recession of in 2008-9, was the best choice. Fiscal policy involves changes being made in government expenditure and or taxes with the aim of reaching certain economic objectives, such as stable prices, low unemployment and ultimately economic growth (Arnold, 2012).

1. Introduction The financial crisis started in the USA because of subprime mortgage crisis in 2007. As a consequence of it, a credit crunch was originated and it quickly spread from the real state sector to other sectors, and furthermore, from USA to other countries. This caused a series of financial and economic crises like the collapse of housing markets in Europe, the global stock markets, global financial systems and markets, along with a lot of large banks and financial institutions, as (Sun, et al., 2011) explained. The financial crisis from 2007 has caused the greatest global economy recession since the Great Depression and also the European sovereign debt crisis.

It was the eventual overheating of the housing market bubble that led to the financial crisis of 2008. The crisis ultimately led to a substantial rise in mortgage defaults and home foreclosures as well as large losses for both banks and shadow banks that owned mortgage-backed securities and higher volatility in the stock market (Mankiw 349). Mankiw provides an adequate overall analysis of the 2008 financial crisis as it occurred; however, Mankiw leaves out many key points in his case study in reference to factors that contributed to the financial crisis and its ultimate repercussions not only on the United States economy, but on the global economy as well. Mankiw correctly diagnosis many of the factors that led to the 2008 financial crisis and it is appropriate to address them and further elaborate the effects they had on the crisis. The first of these issues is the financial innovation that came to be known as securitization.