Could Western Nations Have Avoided the 2008 Financial Crisis
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Added on 2020-02-14
Could Western Nations Have Avoided the 2008 Financial Crisis
Added on 2020-02-14
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Could Western Nations Have Avoided the 2008 Financial Crisis
Financial crisis being the second disaster after the Great Depression which happened in the year 1929. Even if many efforts were made to avoid this by the Federal Reserve and the Treasury Department. This happened because of the fact that the US banks were declining this marked the beginning of the great recession. This was also known as the Global Financial Crises which is considered the worst after the greatdepression (Anonymous, 2015). The main reason due to which this was happened that the banks created too much money. This was initiated in the year 2007 because of the crisis in the Subprime Mortgage Market in US which further was developed into a huge crisis in the international banking. The investment bank Lehman Brothers were collapsed on September 15, 2008. Source: Wikipedia He main reason was the Subprime Lending which means giving loans to people whose repayment schedule is not fixed. Because of the decisions of the financial institution the numbers of such individuals gradually were more in number and with that it leads to the formation of the Housing Bubble. The main of this crisis were the relaxation in the lending regulations as the financial institutions allowed such individuals to take loan from the bank even without verifying their credit worthiness. The loans which weregiven were less secured and due to this the number of loans increased very high which also increased the debt in the market. This lead to the increase in the house prices, and many were into the purchase of those
which in turn increased the price of the residential as well as the commercial property. This has increased the debt as the repayment of the debt was not at all sure.The main culprit were the lenders who passed the loan without verifying the details of the borrower and whether he will be able to repay the loan or not which resulted into the huge loss for many major bans (Domitrovic, 2012). The Lehman Brothers which was engaged in providing financial services, investment banking and investment management services and was headquartered in UK were thrown out of the market in 20007 and was declared bankrupt because of the devaluation of the assets and the huge loss in the stock market and the major reason was the involvement in the lending in the subprime mortgage crisis. It could not manage the crisis and was thrown out.Source: Wikipedia The financial crisis lead to many other outcomes such as collapse of the financial system, the loss ofjob for many people, recession, the Gross Domestic Product (GDP) growth was reduced. Some of the global impacts were the investor’s confidence which was lost due to the crisis from the stock market. As this was happened in USA hence the USA’s economic condition affected other nations as well. The exportswere also reduced from the countries such as India, China, Korea etc.All the countries were hit harder by the crisis but the developing countries were suffered a lot because of this. The more the closeness with the world economy, the more impact it created. The financial markers were also not left untouched. In the year 2007 the US stock market was on peek but in the year 2009 it was declined to the lowest to that of 6600. The other main effects on the global economy were the chances of the occurrence f the recession and also the break out of the banking sector. The crisis primarily affected the trade and the financial flows forcing the population to go into poverty. As many developing were not very resourceful, they could not bring the economy on track and they were more concerned about
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