The global financial crisis was a recession that began in 2008 and resulted from the collapse of the housing and investment banking markets.
When the financial system or the economy as a whole experiences rapid and extreme recession. It is said to be in a financial crisis. Financial assets such as stocks, bonds and real estate tend to fall in value dramatically during a financial crisis. It can also be identified by a reduction in credit availability and loss of faith in financial institutions such as banks.
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A financial crisis can be caused by a number of factors, including:
Excessive leverage: When people, companies and governments take on too much debt. They risk financial bankruptcy.
Asset price bubbles: When the cost of an asset such as a house or stock increases rapidly. It can lead to a financial crisis when prices fall sharply.
Bank action: When many customers try to withdraw money from the bank at once. The institution may go bankrupt and close. causing a financial crisis
Mismanagement of financial institutions: A poorly managed financial institution can go bankrupt or fail. This can lead to financial disaster.
Economic recession: A financial crisis can be the result of an economic recession. which is determined by reduced economic activity and increased unemployment.
This article will discuss the Global Financial Crisis (GFC) of 2007-2008, the main causes and effects of the financial crisis on the economy.
What is the global financial crisis?
The global financial crisis of 2007-2008 affected the global economy broadly. housing market bubble Unethical lending of subprime loans and production of overly complex financial products as collateral. Everyone contributed to this.
In particular, the subprime mortgage market in the US was the catalyst for the global financial crisis of 2007-08. Credit with risky loan terms and high interest rates was made available to borrowers with a bad credit history. well under the term “Subprime mortgage” US housing market bubble caused by the increase in subprime loans and the marketing of these loans as securitization later
Many borrowers were unable to make mortgage payments when the housing bubble finally burst and prices began to fall, triggering foreclosures. As a result, the value of the security decreased. And the global financial system experienced a liquidity crisis, which brought the GFC to a halt in 2007-2008.
due to crisis Housing prices fell dramatically. There are many foreclosures. And the credit market was frozen. This in turn triggered a financial crisis that required government intervention and rescue operations. Including the global recession. The effects of the crisis are felt all over the world. causing widespread economic misery as well as declines in employment and economic growth.
What are the main causes of the global financial crisis?
The financial crisis spread rapidly throughout the world as a result of the globalization of financial markets and the connection between financial institutions and countries. Here are the main causes of the global financial crisis of 2007-08:
Subprime mortgage practices: Banks and other financial institutions offer riskier loans. This is called a subprime loan. to consumers with bad credit These loans are often packaged and offered for sale as securities. which inflates the housing market
Lack of regulation: The lack of regulation in the financial sector has led to the emergence of complex financial products that are difficult to assess and understand, such as mortgage bonds. Credit Default Swaps and risky lending practices
Housing bubble: in the USA The housing bubble is formed by subprime loans combined with the marketing of these bonds as securities. Home values fall when the bubble finally bursts. And many borrowers find themselves unable to make mortgage payments.
Credit market freeze: The credit market freezes due to the decline in the value of assets with collateral. This meant that financial institutions were unable to find capital and resulted in a liquidity crisis.
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What are the effects of the global financial crisis?
The consequences of the global financial crisis of 2007-08 were far-reaching and lasting. Some of the key impacts of the global financial crisis on the global economy include:
