The Financial Crisis Of 2007-2008 - 994 Words

The subprime financial crisis of 2007-2008 was brought on by much more than unethical traders. It consisted of multiple variables: the deterioration in financial institutions’ balance sheets, asset price decline, increase in interest rates, and an increase in market ambiguity. This in turn led to the worsening of the adverse selection and moral hazard situation in the market, which led to a decline in economic activity, bringing forth the banking crisis. After the banking crisis, an unanticipated drop in the price level led to the debt deflation. Thus, the factors causing for the financial crisis are as listed: changes in assets market effects on financial institution’s balance sheets, the banking crisis, an increase in market uncertainty, an increase in interest rates, and government fiscal imbalances, and not only restricted to the unethical traders. The asset market effects of the financial crisis were mainly driven by four different aspects: (i) the stock market dec line (ii) the unanticipated decline in price level (iii) the unanticipated decline in the value of domestic currency and (iv) asset-write downs. The decline in the stock market led to a lower net worth, where lenders became unwilling to lend out funds. This in turn led a decline in investment and aggregate demand. The unanticipated decline in price levels led to high liabilities on the institution’s balance sheet. Since the debt contracts contain fixed nominal interest rate payments, a drop in the priceShow MoreRelatedThe Financial Crisis Of 2007-20081389 Words   |  6 PagesOne of the most devastating aspects of the financial crisis of 2007-2008 to middle-class America was the crash of the housing market. Millions of Americans were affected and faced foreclosures on homes that were purchased with subprime mortgages. The impact of these mortgages varied state to state. Nevada, one of the countries leading tourist destinations, led the market in foreclosure rates and housin g appraisal drops. The government s false sense of security in regards to the economy and theRead More2007-2008 Financial Crisis1327 Words   |  6 PagesThe Global Financial Crisis of 2007-2008 The Global Financial Crisis 2007-2008 Economists and scholars spend years dissecting financial markets and evaluating the causes of booms and busts. Throughout United States history there have been multiple economic booms that were underestimated and followed by recessions. In the situation of the 2007-2008 global financial crisis many culprits have been identified as causes, such as loose monetary policy, credit booms, deregulation, over complexity,Read MoreThe Financial Crisis Of 2007 / 2008 Essay808 Words   |  4 PagesThe financial crisis of 2007/2008 had a negative impact on the UK economy, resulting in low growth and high level of unemployment while inflation constantly remained above the 2% target. In those extraordinary circumstances focus of monetary policy had to be on growth rather than reaching inflation target, resulting in gradual reduction of the Bank rate from 5.75% in middle of 2007 to its lowest level of 0.5% in the beginning of 2009 (BoE, 2014). Although, a low interest rate led to significant depre ciationRead MoreThe Financial Crisis Of 2007-20081419 Words   |  6 Pagesthe recent credit crunch. The financial crisis of 2007–2008, also known as the Global Financial Crisis and 2008 financial crisis, is considered by some economists such as Nouriel Roubini, professor of economics and international business at New York University, Kenneth Rogoff, professor of economics and public policy at Harvard University, and Nariman Behravesh, chief economist and executive vice president for IHS Global Insight, to have been the worst financial crisis since the Great Depression ofRead MoreThe Financial Crisis of 2007-2008541 Words   |  2 PagesThe financial crisis of 2007-2008 had more sounding effects on financial institutions even greater than the crisis brought about by the stocks downfall in the 1990’s. The reason for this is that the financial institutions were at the centre of the whole crisis. And financial institutions being one of the key pillars in a country’s economy, the crisis was bound to have a big effect in US as a whole. So, in order to understand wha t rely happened, it is wise to go through the paper written by NicholasRead MoreThe Financial Crisis Of 2007-2008928 Words   |  4 PagesDefine: Introduction The Financial Crisis of 2007-2008 was considered to be the worst financial crisis since the Great Depression in the decade preceding World War II. The Global Financial Crisis threatened large range of the financial organizations. Although the central banks and other banks were trying to keep away from the crisis, the stock market still suffered a huge decline internationally. Other than the global stock market, the house market was also influenced greatly, causing the unemploymentRead MoreThe Financial Crisis Of 2007 / 20081914 Words   |  8 PagesThe financial crisis of 2007/2008 had a negative impact on the UK economy, resulting in low growth and high level of unemployment while inflation constantly remained above the 2% target. In those extraordinary circumstances focus of monetary policy had to be on growth rather than reaching inflation target, resulting in gradual reduction of the Bank rate from 5.75% in middle of 2007 to its lowest level of 0.5% in the beginning of 2009 (BoE , 2014). Although, a low interest rate led to significant depreciationRead MoreThe Financial Crisis Of 2007-2008 Essay2367 Words   |  10 PagesWhen discussing the financial crisis of 2007-2008, it is incredibly important to discuss the relevance of the government bailout and organized sale of Bear Stearns. There is a large amount of discussion behind whether or not Bear Stearns, a large investment based financial institution, should have been bailed out by the US government. The decision to bail out and have a government-orchestrated sale of Bear Stearns was an incredibly complicated situation to discuss and there are parts of which cannotRead MoreThe Global Financial Crisis Of 2007-20081123 Words   |  5 PagesThe Global Financial Crisis of 2007-2008 is the worst financial crisis since the 1930’s The Great Depression (Reuters, 2009). Even if bailouts of banks by national governments prevented the collapse of major financial institutions, worldwide stock markets continue d to drop. Evictions and foreclosures overwhelmed the housing market while severed unemployment embraced the labor market (Baily and Elliot, 2009). This global financial crisis was responsible for the decline in the consumers’ wealth, andRead MoreEffects Of The Financial Crisis Of 2007-20081763 Words   |  8 PagesFinancial crisis of 2007-2008 is widely considered to be the worst financial crisis since the Great Depression of 1930s. The origin of this big storm dated back to the high home prices of the United States. After America’s entire investment banking system was attacked, many industries such as auto industry also went bankrupt. Unfortunately, it spread quickly to the whole world, causing huge damages to the global economy. Therefore, my study will focus on the effects of the financial crisis of 2007-2008