7FNCE011W Coursework: Analysis of the 2008 Financial Market Event

This report provides a comprehensive analysis of the 2008 financial crisis, focusing on its impact on the UK economy and financial markets. It begins with a selection and justification of the 2008 financial crisis as the chosen market event, emphasizing its global impact and the role of the US housing mortgage market. The report then details the macroeconomic environment before, during, and after the crisis, highlighting the UK's economic growth, household debt, and subsequent recession. It documents the impact of the event on the market, including the collapse of banks and the decline in market confidence. The report addresses the question of whether the event is a one-off, discusses changes made to prevent recurrence, and offers recommendations for further regulatory improvements, such as careful household and mortgage loan acceptance and implementing a clean financial system. Finally, it speculates on potential profit-making strategies based on the event and includes a list of references.

Running head: FINANCIAL MARKET
Financial Market
Name of the Student:
Name of the University:
Authors Note:

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Contents
Selection and justification of a market event:..................................................................................2
Discuss the market before, during and after the event:...................................................................3
Documentation of impact of selected event on the market:............................................................4
Is it a one off event or will it happen again:....................................................................................5
Changes made to prevent such event from occurring in the future again:......................................5
In case no changes made then provide appropriate recommendation including regulatory
changes:...........................................................................................................................................6
Making profit out of the selected event:..........................................................................................7
References:......................................................................................................................................8

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Selection and justification of a market event:
The financial crisis of 2008 that compelled the whole world to take note of the financial bubble
created in the housing mortgage market in the United States (US) is the event selected here. The
recession that started in the US soon catch the entire world. Subsequent to the collapse of US’s
largest investment bank Lehman Brothers an unprecedented financial crisis triggered across the
globe including the United Kingdom (UK). Royal Bank of Scotland (RBS), Lloyds and HBOS in
the UK also collapsed and had to be rescued by using the taxpayers’ money (Blundell-Wignall,
2018).
The reason the 2008 financial crisis has been selected in this document is due to the huge impact
it had in all across the globe. The financial crisis that started in the US affected the entire world.
Further the reason behind the financial crisis is even more shocking with manmade bubble
created in the US home mortgage market starting the biggest financial crisis of recent history.
Stock markets across the globe tumbled with large banks and their shares tumbled like house of
cards, the 2008 financial crisis taught the entire world the need of credibility and accountability
in the financial markets. However, though number of lessons have been learnt subsequent to the
2008 financial crisis but a detailed discussion in this document will be helpful to assess whether
appropriate steps have been taken to ensure no such event occurs in the future (Bohrer, 2019).
The impact of the event on the overall economy of the UK can be understood from the fact that
the country recorded its biggest deficit in history in the growth of GDP. Thus, the extent of
damage to the economy can be understood from the following diagram showing quarterly GDP
growth of the country before and during the financial crisis (DEMIRBAS, 2017).

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As can be seen from the above graph that the quarterly GDP growth of the country took a nose
dive to the negatives immediately subsequent to the financial crisis that hit the country in 2008.
In fact till the impact of the recession continued the country failed to get back to the GDP growth
rate that it was experiencing before the event.
Discuss the market before, during and after the event:
Considering that UK is the sixth largest economy of the world in terms of GDP and ninth largest
by Purchasing Power Parity thus, it supposed to have resistance to withstand a financial crisis.
The market before the financial crisis of 2008 was quite upbeat with the economy looking
upward. In 1997 the Labor party led by Tony Blair won the General Election and inherited a
strong and growing economy and in fact during the 10 years’ period of Blair the country
experienced economic growth in 40 successive quarters until the 2nd quarter of 2008 (Goodhart,
2018). The arte of annual growth averaged at 2.68% from 1992 to 2007, i.e. prior to the year in
which the financial crisis hit the country. The country experienced highest GDP growth rate out

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of all the developed nations during this period however, the household debt during the period
also increased tremendously. From house hold debt of £420 billion in 1994 it increased to £1.46
trillion in 2008. Thus, in 2008 the household debt of the country was greater than tits entire GDP.
The bad loans and mortgage in these household debt was one of the main contributory factor that
led to the collapse of large banks in the UK and in the US.
With the financial crisis hitting the country and its economy hard the growth rate of GDP
experienced historic low. In fact the country recorded its biggest deficit in GDP immediately
subsequent the event. The interest rates was cut to their lowest during this period to boost
lending to revive the economy. However, the country exited the recession after recording six
consecutive quarters of negative growth in 4th quarter of 2009. The state of the market can be
understood from the fact that financial, business and household debt stood at enormous 420% of
GDP of the UK in 2011. By the time UK was world’s most indebted country. The effects of the
financial crisis continued till 2013 when finally the country was able to recover fully from the
effects of the recession of 2008 (Marek, 2018).
Subsequent to the event, i.e. by the time the country has fully recovered from the effects of the
financial crisis the country experienced its highest employment in 2015. In terms of GDP growth
UK tops the G7 nations and Europe.
Documentation of impact of selected event on the market:
As already discussed that the selected event had serious consequences on the economy of the
country and around the globe. Thus, obviously the mood of the market reflected the economic
gloom that surrounded the country. The share prices of large banks including RBS, Lloyds and
others came crashing down. In fact taxpayers’ money had to be used to ensure these banks stay

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afloat and not go out of business. The unemployment rates touched record highs in the country
during the period from 2008 to 2009. As a result the overall market in the country was impacted
extremely negatively. The trust of the people in the market was at its lowest resulting steep
decline in the market curve (Meng, Siriwardana, Dollery and Mounter, 2019).
Addressing the respective question:
Taking into consideration the financial crisis and its impact on the market brief answers are
provided to the following questions.
Is it a one off event or will it happen again:
The financial crisis 2008 often referred to as recession 2008 is certainly not a one off event from
any stretch of imagination thus, if the market had not learned from the mistakes that have
resulted such huge financial crisis in 2008 then such event will take place again in the future.
Hence, it would wrong to term the financial crisis of 2008 as one off event and yes such event
can occur even in the future if proper steps are not taken.
Changes made to prevent such event from occurring in the future again:
The government in the country has made number of reforms to the regulations of the financial
system in the country subsequent to the financial crisis in late 2000s. The key aspect of the
reforms was that these reforms were introduced to protect the interests of the public in general.
The aim of the reforms to the regulation was to ensure that even in case a bank falls the wider
economy and financial system would be protected. Financial Policy Committee was created to
introduce reforms to the regulations governing financial system in the country with the primary
responsibility of the committee is to identify, monitor and regulate risks relating to the financial
stability of the country. The banks in the country since the financial crisis have continued to

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build capital resources to more than double their risk weighted capital ratios. Further annual
stress tests have been introduced to conduct stress tests on banks to ensure that banks are capable
to withstand severe stress in the times of financial crisis (The Fund's Response to the 2007-08
Financial Crisis - Stocktaking and Collaboration with the Financial Stability Forum, 2020).
In case no changes made then provide appropriate recommendation including regulatory
changes:
There is no doubt number of steps have been taken by the government to reduce the possibility
of such financial crisis being repeated in the future however, there are so many other things that
are yet to be done or changed to further improve the financial system in the country to support
the market and its growth and to reduce the possibility of any financial crisis in the future. The
following recommendation should be followed to improve the financial system to enhance its
ability to withstand future crisis better (Ojong, 2018).
Household and mortgage loans should be accepted carefully:
One of the biggest reasons for the financial crisis of 2008 was the household mortgage bubble in
the US and the UK. As already mentioned that UK had household debt in excess of its GDP at
the time of the financial crisis. At the time of 2008 the household debt in the country was £1.46
trillion, more than the GDP of the country at that time. Thus, ensuring that household loans and
mortgages are accepted after proper verification of the client to reduce the proportion of bad
loans in the future (Artha and de Haan, 2018).
A clean financial system:
A clean financial system shall be implemented by taking necessary measures to enhance the trust
of the people on the financial system.

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Making profit out of the selected event:
Events such as the one selected in this case rarely helps anyone to make profit as the 2008
financial crisis was so exclusive that almost all the market participants and general public was
negatively affected from that. However, by investing on the fall of household mortgage market
one could have made millions on their investment. Further the shares that had once huge value
but crashed down to the earth could have been purchased at low cost in a hope that when the
market will recover the value of these shares will enhance significantly to help the investors to
earn substantial return on the amount of investment.

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References:
Artha, I. and de Haan, J., 2018. Labor Market Flexibility and the Impact of the Financial
Crisis. Kyklos, 67(5), pp.213-230.
Blundell-Wignall, A., 2018. The subprime crisis. OECD Journal: Financial Market Trends,
2018(3), pp.29-53.
Bohrer, A., 2019. The Financial Crisis Impact. SSRN Electronic Journal, 3(3), pp.14-20.
DEMIRBAS, E., 2017. Macroeconomic Impact of 2008 Financial Crisis on Countries by Income
Groups. Nile Journal of Business and Economics, 2(4), p.57.
Goodhart, C., 2018. The regulatory response to the financial crisis. Journal of Financial
Stability, 7(7), pp.351-358.
Marek, P., 2018. Financial Crisis, Fall and Financial Theory. European Financial and
Accounting Journal, 5(5), pp.4-5.
Meng, X., Siriwardana, M., Dollery, B. and Mounter, S., 2019. The Impact of the 2008 World
Financial Crisis on Tourism and the Singapore Economy and Policy Responses: A CGE
Analysis. International Journal of Trade, Economics and Finance, 5(5), pp.46-53.
Ojong, C., 2018. Impact of 2007- 2009 Global Financial Crisis on Cocoa Exportation in
Nigeria. Advances in Social Sciences Research Journal, 5(14), pp.12-17.
Policy Papers, 2020. The Fund's Response to the 2007-08 Financial Crisis - Stocktaking and
Collaboration with the Financial Stability Forum. 12(56), pp.144-148.

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