Subprime Financial Crisis and its Worldwide Impact

FINANCIAL
MARKETS &
INSTITUTIONS
7FNCE011W
COURSEWORK

Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
The subprime financial crisis is examined...................................................................................3
The event's worldwide influence, if any, was discussed.............................................................5
Is this a ‘one-time’ occurrence, or will it occur again? What were the policy responses?..........5
How would you have gained from the market event you chose?................................................6
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
A worldwide financial crisis that occurred from 2007 to 2010 in the United States was the
subprime mortgage crisis. It contributed to the global financial crisis that took place from 2007 to
2008. As a result of a burst of a housing bubble, the United States experienced a sharp decline in
house values, leading to foreclosures, mortgage defaults, and devaluation of housing assets (Hall,
Yoder, and Karandikar, 2021). During the Great Recession, home investments dropped, and then
household expenditures dropped, followed by a drop in business investments. When household
debt levels were high and property values dropped steeply, spending cuts were more pronounced
in those areas. The following report highlights the details about crisis and how was the
macroeconomic environment affected in the long run. The worldwide impact of the crisis has
also been discussed. The regulatory developments have also been discussed therein the report.
MAIN BODY
The subprime financial crisis is examined.
Because of subprime mortgage loans, which were ignited by an uncontrolled utilization of
subsidiaries, the trust between banks imploded in the year prior to the 2008 monetary emergency.
Regardless of the relative multitude of restorative advances taken by the public authority, the
monetary emergency brought about the Great Recession. The ascent and breakdown of the
lodging bubble in the United States encouraged the emergency overall. Note that the air pocket
emerged because of expanding interest for lodging properties during the 2000s, which prompted
quick ascents in home costs (Kaganov, 2019). Banks had a vital part in helping interest by
making contracts more open to everybody. Credit defaults, then again, became predominant.
Property dispossessions happened soon after. Banks couldn't sell these properties
simultaneously, prompting extra devaluation of lodging related resources. The lodging bubble
burst, hastening the calamity. House proprietors, banking and other money organizations, and
financial backers who purchased contract supported protections were totally impacted by the
accident.
On February 21, 2003, It was given the first warning about the hazards of mortgage-backed
securities and other derivatives. "In our opinion, however, derivatives are financial weapons of
mass destruction," Warren Buffett wrote to his shareholders at the time, "carrying risks that,
although now latent, are potentially lethal." Housing prices had skyrocketed by June 2004. To