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Financial Crisis of 2008 - Research Paper Example

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The world economy is currently at its worst with most countries hit by the pinching global recession. Effects of economic recession or financial crisis are usually witnessed in employment, industrial production and in real estate income…
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Financial Crisis of 2008
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Financial Crisis of 2008

Download file to see previous pages... Effects of economic recession or financial crisis are usually witnessed in employment, industrial production and in real estate income (Magdoff and Bellamy 41). The technical economic indicator associated with recession is economic growth which is negative which in quarters is two consecutive when measured by a nation’s GDP (Gross Domestic product). The 2008 financial crisis affected all financial institutions in the world. The financial crisis endangered the total collapse of financial bodies, the reduction in stock markets all over the world, world government tried to apply bailouts to financial institutions but still it had little effect. In certain areas such as housing was badly affected in that it led to foreclosures, evictions and unemployment among many people. In addition, the financial crisis was responsible for the collapse or failure of major business, decrease in consumer wealth and recession in economic activities all over the world resulting to the 2008 financial crisis and leading to European debt problems or crisis. The financial crisis in the US was sparked by the housing bubble that influenced the values of securities in US associated with housing prices to destruction of financial bodies in the world. Further, the 2008 financial crisis was activated by intricate interplay of government laws that motivated home ownership offering them cheap interests on house loans. In October 2008, questions emerged regarding the issue of bank solvency, downturn in availability of credit to citizens and the destroyed investors confidence which had a negative influence on the world stock markets especially in the US and Europe where securities experienced massive losses in 2008. During this time, global trade decreased as availability of credit tightened. The US government reacted to this phenomenon with fiscal stimulus packages for financial institutions, monetary laws expansion, and bailouts (Magdoff and Bellamy 72). The US financial crisis left many shocked because it severely affected their lives. The crisis ended in late 2008 and the beginning of 2009 in the US when the congress enacted the recovery and reinvestment Act of 2009. After viewing the two movies, “Too Big to Fail’ and the “Margin Call” it is clear that the US financial crisis began in the housing industry specifically in the mortgage market known as subprime, which spread to prime mortgage, and other types of debts that mortgage firms in the US faced. The movie “Too Big to Fail” clearly shows the real events that took place in that the US banks and other financial institutions counted losses as high as third of the total financial or bank capital. The films shows that the crisis caused to sharp decrease in bank lending that resulted in severe downturn in the economy of the United States of America. Between August 2008 and October 2008, the subprime borrowers in the US have affected the availability of credit and decreased the repayment of loans. Subprime loans are risky because they are likely to suffer from default than loans offered to prime borrowers. Therefore, if a borrower makes timely repayment of his or her loan, the lender may claim the control of the property. In August 2008, the value of subprime mortgage borrowers stood at over $ 1 trillion with the total of over $ 7 million outstanding mortgage balance. This eventually led to the increase in lending of loans to subprime borrowers with the perception that the prices of houses will continue to increase with time. Further, this act was aided by the increase of non-bank autonomous mortgages, which regardless of their smaller share in the market contributed a lot to the housing indus ...Download file to see next pagesRead More
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