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    Financial Crisis 2008 Reasons and Comsequenses by Nihal Sharma

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    Financial Crisis 2008 Reasons and Comsequenses by Nihal Sharma

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    Nihal Sharma
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    financial crisis of 2008 and its impact on world

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    financial crisis 2008 reasons and comsequenses by nihal sharma

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    financial crisis of 2008 and its impact on world

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    5 views2 pages

    Financial Crisis 2008 Reasons and Comsequenses by Nihal Sharma

    Uploaded by

    Nihal Sharma
    financial crisis of 2008 and its impact on world

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
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    The Financial Crisis of 2008: A Brief Overview

    The financial crisis of 2008, o en referred to as the Global Financial Crisis (GFC), was one of the
    most severe economic downturns since the Great Depression of the 1930s. It originated in the
    United States but quickly spread to economies across the world, affec ng global financial markets
    and leading to widespread economic hardships.

    Causes of the Crisis:

    1. Subprime Mortgage Bubble: In the early 2000s, U.S. banks and financial ins tu ons began
    offering subprime mortgages (high-risk loans to borrowers with poor credit histories) in large
    numbers. Housing prices soared, and many people took on loans they could not afford to
    repay.

    2. Housing Market Collapse: The housing bubble burst around 2007 when property values
    plummeted, and millions of homeowners defaulted on their mortgage payments. This led to
    a sharp increase in foreclosures.

    3. Securi za on and Deriva ves: Banks bundled these risky mortgages into securi es (called
    mortgage-backed securi es or MBS) and sold them to investors. Many of these securi es
    were rated as low risk by credit ra ng agencies. Financial ins tu ons also used complex
    deriva ves like collateralized debt obliga ons (CDOs) to spread risk, but they were based on
    underlying bad loans.

    4. Bank Failures: As defaults surged, financial ins tu ons holding mortgage-backed securi es
    and deriva ves faced massive losses. Major banks and investment firms, such as Lehman
    Brothers, collapsed or required government bailouts to avoid bankruptcy. The failure of
    Lehman Brothers in September 2008 is o en seen as the peak of the crisis.

    5. Credit Crunch: With banks collapsing or at risk, lending between financial ins tu ons dried
    up, causing a credit freeze. Businesses and consumers found it difficult to obtain loans,
    leading to a contrac on in economic ac vity.

    Global Impact:

     Stock Market Crash: Global stock markets lost trillions of dollars in value as panic spread
    across economies. Many major indices, like the U.S. Dow Jones and the UK’s FTSE, saw
    dras c declines.

     Recession: The financial crisis triggered a severe economic recession. Unemployment rates
    soared, and businesses, par cularly in the U.S. and Europe, struggled to survive. The U.S.
    economy officially entered a recession in December 2007, which lasted un l June 2009.

     European Debt Crisis: Several European countries, including Greece, Spain, and Ireland,
    faced sovereign debt crises due to the interconnectedness of the global financial system.
    Governments had to take on massive debts to stabilize their economies.

    Response to the Crisis:

    1. Government Bailouts: Many governments, par cularly the U.S. and the UK, stepped in to
    bail out struggling financial ins tu ons. The U.S. government launched the Troubled Asset
    Relief Program (TARP), which injected capital into banks to stabilize the financial system.
    2. Monetary Easing: Central banks, such as the Federal Reserve and the European Central
    Bank, cut interest rates to near-zero levels and launched quan ta ve easing programs to
    inject liquidity into the financial system.

    3. Regulatory Reforms: To prevent future crises, regulatory measures were introduced,


    including the Dodd-Frank Act in the U.S., which aimed to increase transparency in financial
    markets and reduce risky behavior by banks

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