Global Financial Crisis Essay

4038 WordsFeb 15, 201117 Pages
Global Financial Crisis Question B: 1.0 Introduction: The world financial economies has been on the decline for a while, no one took the events seriously. During the late half of 2007 into 2008 the world recognises that there was a problem. Around the world there was instability in the economies, stock markets fell, large financial institution have been bought out, or collapsed, and governments in some of the wealthiest nations have had to come up with rescue packages for bail out to their financial institutions. A global financial meltdown does affect the livelihoods of almost everyone in an increasingly global connected world. By September 2008, the crisis had worsened as stock markets around the globe crashed and became highly volatile. Consumer confidence hit rock bottom as everyone tightened their belts in fear of what could lie ahead. The three main causes behind the global economic crisis include the collapse of the housing sector, a significant drop in stock market values and the bankruptcy or merger of some of the largest companies and financial institutions in the world, all these factors are interrelated when combined. Causes: It all started long before the world knew about the problems, in 2001 internet shares collapsed and the US started to experience its first effects of a recession, so the Federal Reserve responded by lowing interest rates by 1%, the lowest ever. This move encouraged people to purchase houses, as house prices began to increase the mortgage companies relaxed their lending criteria to try and capitalize on the booming property market. Mortgages were sold to people with bad credit, low incomes and first generation immigrants, thus the development of the ‘subprime mortgage market”. Banks also got in on this ‘subprime market’, by investing, selling and trading risk. The

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