The global financial crisis was a worldwide economic downturn that began in 2008 and was precipitated by the failure of the housing market and investment banks.
A financial crisis occurs when the financial system or the economy as a whole experiences a quick and significant fall. During financial crises, financial assets such as stocks, bonds, and real estate can see a sharp and large decrease in value. They are also distinguished by a decrease in loan availability and a lack of trust in financial institutions such as banks.
A variety of reasons can contribute to a financial crisis, including:
Overleveraging occurs when individuals, corporations, and governments incur excessive debt, putting themselves at risk of financial catastrophe.
Item price bubbles: When the price of an asset, such as a property or stock, rises rapidly, it can lead to a financial crisis if the price falls precipitously.
Bank runs occur when a large number of customers withdraw money from a bank at the same time, causing the institution to become insolvent and shut down, resulting in a financial crisis.
Mismanagement of financial institutions: Poorly managed financial institutions may go bankrupt or fail, resulting in a financial disaster.
Economic recessions: A financial crisis can arise as a result of an economic recession, which is characterised by decreased economic activity and rising unemployment.
What what is a global financial crisis?
The 2007-2008 global financial crisis had far-reaching consequences for the global economy. A housing market bubble, unethical subprime mortgage lending practises, and an oversupply of complex financial products such as mortgage-backed securities all contributed to its origins.
The subprime mortgage industry in the United States, in particular, was a driving force behind the 2007-2008 global financial crisis. Under the umbrella term “subprime mortgages,” loans with riskier lending terms and high interest rates were made available to individuals with poor credit histories. The growth in subprime mortgage loans, and the subsequent marketing of these loans as securities, caused a housing market bubble in the United States.
Many borrowers were unable to make mortgage loan payments as the housing bubble burst and prices began to fall, resulting in a wave of foreclosures. As a result, the value of mortgage-backed securities fell, and the global financial system encountered a liquidity crisis, triggering the 2007-2008 GFC.
Because of the crisis, housing prices fell dramatically, there were many foreclosures, and credit markets were paralysed. As a result, there was a financial crisis that necessitated government intervention and bailouts, as well as a global recession. The repercussions of the crisis were felt globally, producing widespread economic suffering as well as a drop in employment and economic growth.
What is a global financial crisis?
The 2007-2008 global financial crisis had far-reaching consequences for the global economy. A housing market bubble, unethical subprime mortgage lending practises, and an oversupply of complex financial products such as mortgage-backed securities all contributed to its origins.
The subprime mortgage industry in the United States, in particular, was a driving force behind the 2007-2008 global financial crisis. Under the umbrella term “subprime mortgages,” loans with riskier lending terms and high interest rates were made available to individuals with poor credit histories. The growth in subprime mortgage loans, and the subsequent marketing of these loans as securities, caused a housing market bubble in the United States.
Many borrowers were unable to make mortgage loan payments as the housing bubble burst and prices began to fall, resulting in a wave of foreclosures. As a result, the value of mortgage-backed securities fell, and the global financial system encountered a liquidity crisis, triggering the 2007-2008 GFC.
