Causes of the 2007-08 Financial Crisis - Essay Example

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The effect that real estate has on the economy of a country proves that it is important to the economy and has a direct effect of the performance of the economy of a country. Real estate industry is also hit quite hard when the economy is not doing well. The subprime mortgage…
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Causes of the 2007-08 Financial Crisis
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Causes for the 2007-08 Financial Crisis Deema Hamad almana 01651 ENGL 203 Dr, Tobias Christopher lee Qatar The effect that real e has on the economy of a country proves that it is important to the economy and has a direct effect of the performance of the economy of a country. Real estate industry is also hit quite hard when the economy is not doing well. The subprime mortgage crisis only served to prove this fact the more. The crisis came about due to imprudent and excessive lending by the banks (Chapra, M., 2009). The crisis came about in a chain reaction that started with the mixing of subprime and prime debt and passing the entire risk to the ultimate purchaser. Due to this the mortgage originators had lesser incentive to motivate them to take careful underwritings (Chapra, M., 2009). The economy of the real estate industry was affected seriously by the step. With these kinds of effects that the real estate industry had on the economy of the world, it is quite evident that real estate industry is an economic to reckon.
More attention was accorded to loan volumes rather than loan quality as banks fought to increase their investment opportunities hoping to maximize their profits as a result of the economic crunch (Torres, 2010). In Greece alone, investors became reluctant to do business or even finance the Government deficits (Torres, 2010). With the decline in the confidence in government, falling by around 10% in many countries, it became very evident that the masses were discontent with the short term measures that were being taken by governments to try and solve the situation (Torres, 2010). The effects of the meltdown were felt quite deep down the social ladder. Starting at the top with the banks not trusting one another and the interbank credit being anemic, the unequal economic incomes affected the wage growth in countries where it would have been justified by the productivity development.
Chapra, M. (2009). The Global Financial Crisis Can Islamic Finance Help? INSIGHTS ,1, 27-38.
Torres, R. (2011). Global crisis: causes responses and challenges. Responding to the global Crisis: Achievements and pending issue. United States, Washington: international labour office,Inc Read More
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