Cause and Effect: The 2008 Financial Crisis Experience - Essay Example

The effect was like that when the terrorist attack happened in 9/11, only that the impact was confined to the economy but on a global scale. It is interesting to note that this global economic crisis was triggered by a development that happened within the United States. The manner by which people bought and sold houses in America started it all. Somebody from the past, say, from the 17th century or the eighteenth century would be very surprised to find that something happening on another country would have far-reaching effect not only on its neighbors or few countries but also to the whole world.

This crisis is an example of modern cause and effect example wherein the action or actions of people from one corner of the world could affect those others even if they live in the other side of the globe. Economists and politicians, if one would believe what was shown on television, pointed to the mortgage system in America as the source of the problem. It appears that the system by which people could borrow money and trade their houses were not that stringent so it was abused. Because of it, those institutions like banks and those who are involved in financing ended up in trouble.

In a complicated process that can be likened to the domino effect, the businesses and industries connected to the housing sector were caught in the same problem and, things went on a downward spiral afterwards. As the financial system faced enormous stress, many of which went bankrupt, other industries affected in the process. The problem, which was supposed to be an American dilemma, spilled over to other countries as businesses operate within a multinational landscape and the global economic system made each economy interconnected.

The stock exchanges of countries are most especially hit. These are the institutions in each country, where ownership or stocks of organizations are traded. Business organizations are listed here and their stocks are sold and bought on a daily basis. Because of the American mortgage crisis stock markets tumbled and prices of stocks went down, causing huge loses for individuals and organizations. This happened because people feared that the crisis would spread and stocks owners panicked. Unfortunately, this panic further made the economic situation worse.

Because of the 2008 financial crisis, the global economy contracted. For example, because of the crisis the seemingly unstoppable momentum of China’s economic growth slowed down considerably by the last quarter of 2008 (Zheng and Tong, 26). Many people became poorer and there are companies that where forced to close. Because of the crisis, governments started to make their financial systems strictly regulated. The lesson learned was not only about the dangers of having unregulated financial system but also the fact that economic meltdown from other countries will; inevitably, affect the performance of other countries.

This is the result of the globalization phenomenon. It created an integrated global market that benefitted many countries. The benefits, however, do not come with a price. As the profits spread swiftly, so do the problems. In the case of the global economic crisis, globalization facilitated the spread of the American financial troubles.