Financial Crisis of 2008

Financial Crisis of 2008

Financial Crisis of 2008

The financial crisis of 2008, also called the global financial crisis is considered to be the one of the worst financial crisis experienced since the great depression. It almost led to the collapse of large financial institutions. The collapse of these financial institutions was prevented as they were bailed out by the national governments.

However, stock markets still dropped worldwide (Tsai & Chan, 2011). In areas like the USA housing markets also suffered with evictions, foreclosures and prolonged unemployment being prominent. This crisis contributed significantly to the failure in key businesses, decrease in consumer wealth and downturn in economic activity. These deteriorating economic variables led to the global recession experienced between 2008 and 2012 (Steve , 2011). They also contributed to the European sovereign debt crisis.

The rapid increase of America’s housing bubble, which had reached its peak in the year 2006 led to plummeting of values of securities connected to the US real estate pricing. This damaged financial institutions on a global scale. Economists argue that then crisis was trigger by intricate interplay of policies, which encouraged home ownership, which provided easy access to credit. It was also trigger by overvaluation of subprime mortgages, which was on the basis of the theory that housing prices would continue to rise (Lee, 2013).

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Conclusion

The financial crisis, which was experience globally was by many factors. However, the most pronounced cause was the issuance of subprime mortgages. Since these mortgages were low-quality implying that risk assessment procedures were weak, the number of loan defaulters increased.

References
Donna, M. L. (2013). Clinicians’ Reports of the Impact of the 2008 Financial Crisis on Mental Health Clients.
Journal of Social, Behavioral, and Health Sciences, 7(1): 1-22.

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