Financial Crisis in the 1st Decade of the 21st Century

This article discusses the various financial crises that occurred in the first decade of the 21st century, including the dot-com bubble, 9/11 terrorist attacks, Enron scandal, housing crisis, and more.

FINANCIAL CRISIS 1
FINANCIAL CRISIS IN THE 1ST DECADE OF THE 21ST CENTURY
Name
Professor
Institution
Course
Date

FINANCIAL CRISIS 2
The first decade of the 21st century faced several financial events. Some of the events
were good while others were not welcoming in the financial market. Terrorist attacks happened
causing serious consequences which included hurricanes, financial fraud and collapse of the
economic bubbles among other repercussions. The following discussion shows some of the
economic crisis that happened in the first decade of the 21st century.
Year 2000: Occurrence of the Dot.com
This refers to the time when the internet was the elegance. Investors discovered great
prospective in the online commerce. However, there was much infancy in the online business.
The talk in the market in those days was the ‘new economy’ which was generally referred to as
the Internet-driven frugality. Most of the online stocks like yahoo.com were enlisted in the
NASDAQ. The stockholders were becoming rich off the insolvent stocks that had very elevated
rates and huge earnings ratios (Gilpin, 2018, p. 132). In April 2000, there was an inflation report
that led to a speculative bubble burst, and this led to enormous losses in investments.
2001 terrorist attack
The 9/11 attack among other attacks shaped the financial events for the first decade of the
21st century. The economic climate that followed after the 9/11 attack was never the same
anymore. This was the third time when the New York Stock Exchange was closed. Besides the
tragic loss of lives, the monetary loss that happened is very huge (Piketty, 2015, p. 47).
Some estimates show that approximately $ 59 billion was lost in indemnification alone.
About 18,000 minor trades were ruined in lower Manhattan, and it is also during this time when
the department of homeland security was then formed. The 9/11 attack caused huge financial
loss in the USA market.

FINANCIAL CRISIS 3
2001; the emergence of a corporate governance
Enron and Arthur Anderson industries in 2001 were involved in a business outrage that
linked the two industries with fraud. The lander led to the bankruptcy of Enron, and at the same
time, Arthur Andersen was dissolved. Enron hid huge amounts of money from its shareholder in
the failed projects (Charles Jr , et al., 2016, p. 143). The firm then overstretched its accountants
Arthur Andersen to overlook the issue, and this led to the loss of approximately $ 60 billion. The
latter led to the birth of the Sarbanes-Oxley Act in 2002. The act prolonged the forfeits for
bookkeeping, deception and also gave a mandate to book-keeping companies to stay self-
governing of their customers. Other businesses like Tyco also faced similar problems, and all this
led to the loss of confidence from investors hence affecting the security markets.
Stock market crash
After the 9/11 attack, the stock market started to slide in March 2002 and this made
markets to sink deeper. The fraud scandals were key contributors to this.
2003 war on the terror attack
Confrontation against terror attack was hurled in 2003, and its cost was ongoing. At
around 944 billion US dollars have been used overseas to carry out operations (Ilzetzki , et al.,
2016, p. 233). The latter has been a massive drain in the USA economy, and it is possible to
predict that the final cost will be much greater.

FINANCIAL CRISIS 4
2005 China and India act as financiers
The emergence of India together with China to become the world greatest financiers was
amazing. Economists hypothesized that the two economies have a possibility of growing at the
rate of 7-8% in for several years to come (Fenby, 2017, p. 146). The economy of China has
grown at about 9.5% for the last 20 years. These two countries together account for a third of the
total global population. The USA started sourcing cheap labor from China, but the two countries
kept their work between themselves after discovering talent and the potential that they possessed.
2005; the Tragedy of Hurricane Katrina
On August 2005, Hurricane Katrina hit Gulf cost of America. It was the biggest natural
disaster that the USA had ever faced and it destroyed New Orleans due to severe flooding
(Redlinger , et al., 2016, p. 256). More than $200 million was damaged, and also about 400,000
jobs were vanished. About 270, 000 homes were smashed with no possibility of recovery.
2007-2008 Housing crisis
The introduction of the new financial products worsened the situation, and it led to the
2008 financial crisis.
The early 21st century saw many USA housing market boom. The housing value was
galloping. Anybody who wanted to purchase a home could do so with ease (Charles Jr , et al.,
2016, p. 152). There was then the birth of subprime lending, and this made individuals who
could not afford a mortgage to qualify for ones which were adjustable and with little or even no
down payment. Commercial banks made a mortgage to these people for houses at values which

FINANCIAL CRISIS 5
were so much inflated. Very soon, the big institutions were holding loans that were worthless,
and this led to a credit crunch.
The largest Ponzi scheme in American History
Bernard Madoff, an investor and a former chairman of NASDAQ admitted he was
running the Ponzi scheme and also admitted that he had paid investors from the salaries of other
clients. He revealed that he could not manage his obligations (Fenby, 2017, p. 148). He
defrauded his investors about $ 18 billion, and this was noted to be one of the largest investment
fraud in the Wall Street History. This investor was then jailed for 150 years imprisonment.
2007-09
In 2008, the investment banks that were standing in Wall Street started collapsing due to
subprime mortgages and numerous commercial swindling. During the final months of George
Bush administration, the USA government stood out to bail most of the organizations. Obama
administration then experienced some recession the economy by the end of 2009 (Gilpin, 2018,
p. 134). The economy has been showing some signs of healing, but it has been slow and painful.
Conclusion
The first decade of the 21st century saw the economy of USA face many events. Some of
the events sabotaged the economy while others were meant to rebuild the economy. All these
occurrences affected the economy either negatively or positively. The emergence of online
business builds the economy. With the terror attacks and the occurrence of natural calamities, the
economy was dragged down. Due to the dilemma and pressure to reclaim the economy, the
banking investments released mortgages in excessive form till they lost markets. However, the

FINANCIAL CRISIS 6
government at long run stood out and helped institutions to recover. The growth in the economy
has been growing since then but at a very slow rate.
Recommendations
For the economy of USA to face better days in the future, it is advisable for the banking
services to be offering credits to only the creditworthy clients.it is also important for the
corporate government to support the institutions financially so that they do not end up borrowing
more than what they can afford. The government should also come up with measures to protect
terrorist attacks and also educate people on how to survive natural calamities.

FINANCIAL CRISIS 7
References
Charles Jr , O. H., Schmidheiny .,, S. & Watts, P., 2016. Walking the talk: The business case for
sustainable development. 2 ed. Chicago: Routledge.
Fenby, J., 2017. Will China dominate the 21st century. 4 ed. s.l.:John Wiley & Sons..
Gilpin, R., 2018. The challenge of global capitalism: The world economy in the 21st century.. 1st
ed. Princeton: Princeton University Press.
Ilzetzki , E., Reinhart , C. M. & Rogoff, K. S., 2016. Exchange arrangements entering the 21st
century: Which anchor will hold?. National Bureau of Economic Research, 2(2), pp. 231-234.
Piketty, T., 2015. About capital in the twenty-first century. American Economic Review, 105(5),
pp. 48-53.
Redlinger , R., Andersen , P. & Morthorst, P., 2016. Wind energy in the 21st century:
Economics, policy, technology and the changing electricity industry.. 2 ed. Chicago: Springer.