2008 Financial Crisis Essay

This essay examines the 2008 global financial crisis, focusing on whether Western nations could have prevented it. It details the role of subprime lending, the collapse of Lehman Brothers, and the subsequent economic recession. The essay highlights the impact on global markets, including the decline in investor confidence, reduced exports, and increased unemployment. It discusses the transmission mechanisms of the crisis, such as financial flows and trade disruptions, and the differential impact on developed and developing countries. The essay also touches upon the monetary policy responses, including currency devaluation, and the role of international organizations in mitigating the crisis's effects. Ultimately, the essay concludes that while the crisis's causes were complex and multifaceted, certain preventative measures could have potentially lessened its severity.

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 great
depression (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 were
given 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 of
job 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 exports
were 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

the population who were socially backward (Otter, 2012). Hence to mitigate the effects many countries
have made the considerable efforts to reduce the same. This lead to the increase in the cooperation among
the counties and also it required a huge voice in the global economic affairs. As the industrializes countries
were under the pressure of the international institutions hence the extern of their service was very limited
and which in turn reduced their contribution as well in the reduction of the loss which happened.
The main cause of the financial crisis were not the developed countries as the power they posses
was not enough to cause such a huge impact. Hence the major contributor to this crisis was the developed
countries and primarily United States (UK). This created a direct impact on the living conditions of the
people residing in the countries all over the world. The growth cost as per the United Nations Educational,
Scientific and Cultural Organization (UNESCO) showed a decline 390 million poorest people that in
Africa. This made the average per capital income to fall to one fifth of the total. The people who were
unemployed suddenly grew in number as per the International Labor Organization (ILO) were around 50
million by the end of 2009.
Source: World bank global development finance
The situation got worse because of the fact that the crisis did not remained stagnant as it was
transmitted by various means such as the financial flows. As the downfall in the stock market was seen as a
after effect of the financial crisis and due to this the transmission became more easy. This can be seen form

the current flow in the economy which gradually (Grigor’ev, 2009). The major problems are the difficulties
in the less credit grant from the global banks due to risk which existed in the risk premiums and the interest
rates for the developing countries in the bond market.
The another major transmission was done through Trade as due to the economic recession there was
a shortfall in the demand for the goods and services from the recently developing countries. As china and
India were the major exporter this resulted into the fall in the demand for the raw materials for energy and
minerals especially from Africa. The price and also the volume of the exports got shrieked. The causes for
this financial crisis were inevitable for all the countries be it developed or the developing countries were
affected by it in some or the other way as the causes and the effects of this was inevitable.
The causes for this financial crisis were inevitable for all the countries be it developed or the
developing countries were affected by it in some or the other way as the causes and the effects of this was
inevitable. This resulted in the major headline of the developed countries as they were directly affected by
this but the less developed countries were not in the headlines as they were not affected by this to that
extent. Various organizations such as International Monetary Fund, World Bank and many other
international institutions have provided the counties with the support to again regain their position and also
to cover the loss so occurred in the economy by again strengthening the economy.
The monetary policy of the countries were also seem to be affected as for example India has the
considerable amount of the currency reserves as compared to the other countries but when it comes to the
fiscal deficit there is very small scope for the same. Another problem which arose was the devaluation of
the currencies and the major currency US dollar was devalued in order to curb the great recession and the
biggest advantage was that the devaluation of Dollar was found to be effective (Anonymous, 2015). This
resulted into the initiation of the shift from the gold standard and this was first done by the Australia in
1930. Gradually, nine major economies came out with the same devaluation by removing the same from
the gold standard and thus all of them seem to conquer the depression.
From the above we can conclude that the financial crisis has impacted every country in some or the
other way. The only thing which was different that the developed country has impacted a lot as they were
in direct connection with the global economy and the financial crisis impacted the entire economy and thus
to rebuilt the economy was a very difficult task to do. But even then some how this condition was managed
by the countries and many organizations came into the support of the countries which were affected by this.

REFERENCES
Books and Journals
Buckley, A., 2011. Financial crisis. London: FT Prentice Hall, p.203.
Domitrovic, B, 2012, “ The Weak Dollar Caused the Recession” Forbes 189(8), pp. 32
Grigor’ev, L, and Salikhov, M, 2009. Financial Crisis 2008. Prolem of Economic Trnaisiton (51) pp.35-62
Otter. D, & Whertherly, P, 20058 ‘chapter 9: Growth vs. Austerity. The macroeconomy in the globalized
world ;’ in the Business Environment(2nd edition) Glasgow Oxford University Press.
Anonymous, 2010. “Vatican Economist Recession caused by low birth rate “ Catholic Insight [e-journal]
18(4) Available through: Anglia Ruskin University Library Website <http://libweb.ac.uk. [Accessed
on 23 june 2017]