Could Western Nations Have Avoided the 2008 Financial Crisis?

Student I.D Number
COULD WESTERN NATIONS HAVE AVOIDED THE 2008
FINANCIAL CRISIS?
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Student I.D Number
The financial crisis of 2008 has raised an important question of the strength and weaknesses
of the global economy and its condition. In the years post-2000 globalisation has become an
important factor along with the liberalisation of the trade in the economy. Globalisation also
influences the economic, cultural as well as the political factors of the country. The global
financial crisis took place is the year 2008-2009 which already began post-2007. Investments
in the economy have decreased as well as the United Stated faced the liquidity crisis. The
global economy has grown and became an integrated marketplace after the trade liberation
and specialisation (Buckley and Howarth, 2010). Till 2008 the governance and the global
factors were managed successfully; however, the financial crisis reflected the poor structure
of trade followed by the global economy. The crisis of 2008 was started in the United States
which later affected the other parts of the world as all the countries are interdependent on
each other regarding the trade. This study discusses the reasons for the economic crisis and
the economic effect the crisis had on the economy and to what extent those were evitable.
The banking sector and the credit department of United States were associated with a large
number of countries and thus the financial activities of many institutions all around the world
were affected. The credit flow in the economy was tightened and hence the financial market
experienced a huge decline. In different countries, problems related to equity funds arises.
Due to the financial crisis, the currency got devalued in many countries. Before the crisis
took place the consumption level in the US was high while the savings rate was low. There
was the high level of foreign money that flowed into the US economy from another fast-
growing economy like Asia that was growing faster. The interest rate in the United States was
low however the flow of funds made the credit conditions much easier during 2002-2004.
Consumers could easily get various loans and hence borrowing rate was high. Loans related
to housing and mortgage increased rapidly (Forbes.com. 2017). Such low-interest rate attracts
investors from all around the world to invest in the housing market of US. With the increase
in investment, the loss and the defaults related to the loan increased rapidly that opened the
path for a financial crisis to the US economy. The financial system in the US became fragile
and the importance of Financial Institutions such as investment bank decreased. Many policy
makers could not find the reason why the importance of hedge funds decreased and many
believed that the commercial bank supplied credit to the US economy and had fewer
regulations (Staff, 2017). Due to fewer regulations, many commercial banks faced several
burdens and the losses made the economic activities much slower.
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