Financial Crisis of 2007-2009 - Essay Example

Crash in the housing market also came under the occurrence in many regions of the world, as an outcome, a huge number of vacancies lingered. In addition, the crisis also played a vital role and made a deep impact in the breakdown of many businesses with falling off in consumer prosperity. The 2007 financial crisis is also termed as the Great Recession, the Global Financial Crisis (GFC), and Credit Crunch (Kolb, pp.77-139). The destruction of international financial institutions was outcome of the crash down of US housing bubbles, which lead to decline in the real estate pricing.

Housing bubble is an economic bubble that arises in the local or international real estate market from time to time when the worth of the real estate properties faces a swift increase, which becomes unmatchable with the earnings and other economic factors. The financial crisis came to an end until mid of 2009, although it had left an indelible imprint across the globe that is still coming under experience. According to some research conducted by economists, it came under limelight that the crisis was completely manmade and was the result of wrong financial decisions.

The stakeholders specifically the owners focused on the profit aspect of their business and neglected the risk factor involved in this profit making activity (United Nations, pp.1-10). In the years 2005-2006, the US housing bubble was packed, overcrowded and was at its highest point, which lead to the abrupt ground or the main cause due to which the crisis happened (Kolb, pp.77-139). The default rates that were high previously on subprime and adjustable rate mortgages further skyrocketed. The housing prices started to increase at a high percentage as banks started to provide the prospective mortgagee with more loans.

Prospects were motivated by banks to take high loans ignoring the segment of interest rates, with a perspective and confidence that they would be able to repay the loans in less time. The housing prices dropped at a drastic speed as soon as the interest rates started climbing. Housing and credit upsurge lead to augmentation of various financial accords, namely mortgage-backed securities (MBS) and collateralized debt obligations (CDO) at an unprecedented rate. This caught the attention of the local and international investors and corporations to plunge in the US housing market as they observed an opportunity to make potential profits from this market.

With the turn down in the housing value, innumerable people including the global investors/institutions, borrowers and investors in subprime MBS faced heavy and noteworthy losses. The decline in housing value was so severe that had they auctioned the house, the recovery of the mortgage price would not have been possible. In 2006, the lenders of the housing loans received an incentive of foreclosure. They approached the legal officials for the recovery of their money (Kolb, pp.77-139). The banking organizations got a financial power and they started absorbing customers’ wealth to make for their losses.

This crisis was not only come under observance in housing sector but other factions of the economy also experienced the same drastic effects. The main reason for the crisis includes a number of factors. The mortgages come under sanction to a huge number of people, without