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Financial Crisis

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Introduction

The Financial Crisis The global financial crisis is a major financial crisis, the worst of its kind since the Great Depression. It became prominently visible in September 2008 with the failure, merger or conservatorship of several large United States-based financial firms. The underlying causes leading to the crisis had been reported in business journals for many months before September, with commentary about the financial stability of leading U.S. and European investment banks, insurance firms and mortgage banks consequent to the subprime mortgage crisis. The main cause of the credit crunch goes back to around a decade ago, a problem was going on that did not seem like a problem at the time it seemed beneficial for banks to do was going on. This problem is called subprime lending and still goes on today. Back in the 1990s, taxes were low at the rate of around 2%, in America which meant more people could afford to buy houses and take out mortgages from banks. ...read more.

Middle

One of causes of the "Subprime mortgage crisis" is the large increase in the housing market and then the decline. This is why the practices of subprime mortgages increased, since the housing market has grown substantially and tax has been steadily going up over the past decade, this gives opportunities for firms to benefit largely as the profits gained from this sector of business were great. There has also been a problem with over building houses during this boom. This large increase lead to more firms using subprime mortgages as many people could not pay off their mortgage and some had to even get a second mortgage. The financial crisis will not only affect taxpayers but almost everybody. As stocks fall the recession acts a chain reaction; first of all, consumer confidence falls then as a consequence of this high street sales of goods will fall, then business selling less goods mean they are making less profits, which in turn drops their confidence of taking risks and investing else where, this then has an effect on the suppliers; they have to make less goods therefore they make less profit as the businesses aren't buying their goods. ...read more.

Conclusion

In the short term, it is working but we don't fully know if this can fix the problem. The government's $700bn has raised many questions though. Many are sceptical about this, they believe the government is interfering and transferring private sectors into the public sector. Even in the most free market economies like America, they are doing the same thing; it shows that we cannot have a true free market economy. In short, what could happen to the economy no one really knows for sure, and no one will know for a while. It takes time for changes of this magnitude to take effect. But if we don't do something soon then the whole world could be in complete jeopardy, the main economic powers of this planet could crumble and fall, if these giants go, then the world's economy as a whole will be shot to pieces. It will take careful planning from the government and they will have to renew their ideas on how to climb out of this pit of a recession. Everyone could suffer as a result of this economic tragedy. ?? ?? ?? ?? Name: Oliver Al-Rehani ...read more.

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