2008 Credit Crisis

Running head: 2008 CREDIT CRISIS 1
2008 Credit Crisis
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Institution

2008 CREDIT CRISIS 2
2008 Credit Crisis
The beginning of the credit crisis was marked by the decline of mortgages in the year
2006. The depression perpetuated to the great 2008 credit crisis contrary to the realtor's hope of
sustainable markets. Hedge funds, banks, and insurance companies influenced the credit crisis
(Ciner, Gurdgiev, & Lucey, 2013). While the Hedge funds and banks created Mortgage-backed
securities, the insurance companies continued to insure them against the credit default. The
increased demand for mortgages contributed to the increased sales by the banks and hedge funds.
This influenced the banks to offer an over-draft credit to new home investments which had more
than 100% credit value. As a result, the number of questionable creditworthy creditors increased.
After the market depression in 2006, creditors defaulted their mortgages, a move that affected the
mutual funds, pension funds, and corporations that owned the investments. The resultant banking
crisis in 2007 led to the 2008 financial crisis. The second worst recession after the great
depression was produced. This recorded a severe impact on the bond market.
Following the unsteady drop in the value of shares, the credit crunch shacked the
financial market. The resultant effect was reduced revenues and profits by the corresponding
firms. As a result, there were low payments of dividends. The investors adopted unattractive
investment option. However, after the 2008 recession, shares began to recover and share market
bounced back as a result of increased economic growth (Streeck, 2014).
On the contrary, while the share market was declining, the bond market was increasing.
Unlike the shares which are risky and full of uncertainty, government bonds are safe-haven for
investors (Ciner, Gurdgiev, & Lucey, 2013; Streeck, 2014). In circumstances of investment
uncertainty, investors shift to safer investment options like government bonds. Consequently, as
a result of the shift, the investors adopted the quantitative easing policy which influenced the