The 2008 global financial crisis is said to be the worst financial problem to have faced the world since the Great Depression of the 1930s. The financial crisis was preceded by an economic boom of some sort and high investment levels. In fact, prior to this crisis, many economists had voiced their concerns over the amount of credit flow in the US as well as investments. So what really caused this financial catastrophe and what effects did it have on America and the world at large?
This article will discus the Causes of the Global Financial Crisis of 2008
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The global financial crisis of 2008
1. The Global Financial Crisis of 2008- Causes
and Effects
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causes-and-effects/
2. The 2008 global financial crisis is said to be the worst financial problem to have faced the world
since the Great Depression of the 1930s. The financial crisis was preceded by an economic boom
of some sort and high investment levels. In fact, prior to this crisis, many economists had voiced
their concerns over the amount of credit flow in the US as well as investments. So what really
caused this financial catastrophe and what effects did it have on America and the world at large?
Causes of the Global Financial Crisis of 2008
Economists and many experts have debated the causes of the 2008 global financial crisis ad
infinitum. This is because it was one of the worst financial disasters to be experienced whose
effects are still being felt to date. Amongst the major causes that have been unearthed include:
๏ท Real Estate boom. The real estate market has been at the heart of the global financial
crisis of 2008 for a good reason. Prior to the crisis, there was a real estate and mortgage
boom with many people buying houses only to sell them at a higher price and gain good
profits. Despite the risk, the earlier investors in this business became so rich so that
everyone wanted to be part of this business. However after a while, the prices of the
houses began to go down and instead of making massive profits, those who had invested
in the business made losses or even failed to find buyers for the properties they had
bought.
๏ท Easy credit access. With the mortgage boom, many credit lenders became generous.
From banks to government owned enterprises and private lenders, credit was easily
available. This is because most private banks lowered the standards of borrowing in order
to capture the huge market of real estate investors. As a result, many credit unworthy
individuals had access to loans and mortgages. When the property prices fell, most banks
and credit facilities went down too. All the credit flow was tightened and this made it
impossible for individuals to get financial help.
๏ท Commodity prices. Some of the economists have attributed the global financial crisis to
the hike in essential commodities such as oil. The rise in oil prices had a ripple effect in
all the other commodities and soon most consumers could not afford essential purchases.
This in turn affected the producers and employees.
Effects of the Global Financial Crisis of 2008
3. The Global Financial Crisis of 2008 Causes and Effects
๏ท The global financial crisis of 2008 resulted in bankruptcy for many credit facilities. This
is because they had lent out so much money and mortgages without saving up capital for
hard times. Additionally, many companies that had invested in real estate also went
bankrupt.
๏ท There were many foreclosures because people could not afford to pay the mortgages.
Additionally, most of the credit facilities tightened the rules for borrowing making it
difficult for those facing financial problems to get any sort of help.
๏ท Bailouts and mergers. The government had to come to the rescue of many longstanding
banks by giving them bailouts. These handouts saved the banks that benefited from the
bailouts. Those that did not get the bailouts had to merge together to avoid collapsing.
๏ท There were also high rates of unemployment because consumers could not afford to
purchase most commodities. This in turn affected production rates and instead of making
losses, companies begun producing less and let go of most of their employees.
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References
http://www.economist.com/news/schoolsbrief/21584534-effects-financial-crisis-are-still-being-
felt-five-years-article
http://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%9308
http://cashmoneylife.com/economic-financial-crisis-2008-causes/
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causes-and-effects/