Essay Example on The financial crisis that hit in 2008









The financial crisis that hit in 2008 was the largest financial crisis since the Great Depression The collapse of the housing bubble was the result of many different factors including how easy it was for people to get credit low interest rates families buying mortgages on homes they couldn't afford poor regulation and irresponsible corporate action The financial crisis is centered around two main groups of people home buyers and investors It was very lucrative for investors to buy mortgages from qualified potential home owners However once the investors ran out of potential qualified homeowners the investors got greedy and asked brokers to give mortgages to unqualified potential homeowners who had bad credit scores The investors didn t care however because they would get the house if the homeowners stopped paying the mortgage This irresponsible mortgage granting led to an increase in average mortgage debt per house from around 90 000 to 150 000 between 2001 and 2007 As a result the investors started to accumulate a lot of property to the point where the supply was much larger than the demand Trillions of dollars were invested in mortgages and mortgage backed securities The investors had extra homes that significantly dropped in value as a result of the demand deficit When investors started buying mortgages and reselling that same mortgage to others everyone was making money However the assumption that house prices would rise forever was a shallow assumption that came back to haunt many greedy investors In addition when investors would decide whether they wanted to buy a mortgage or not the credit rating companies would determine how risky the investment is These agencies were thought to be reliable but ended up being totally unreliable People who bought safe mortgages suddenly were losing money even though their money was guaranteed to grow 

This assumption was not a bad one given the fact that home values had risen more than 60 in 8 years with the average house value over 200 000 However home prices started to plummet causing the crisis in which many banks had to close The government had a decision to make once they saw many banks starting to go bankrupt to inject tax payers money into the banks or to potentially let the US economy collapse The government ended up bailing out banks in fear of economic collapse When the financial crisis was realized in the US many banks who provided very low rate loans started to be extremely selective about who they granted loans to Companies need loans to operate regularly not to mention the whole US economy and this freeze in loans amplified the impact of the crisis Foreign countries also had a role to play in the beginning of the financial crisis and suffered from the effects of the collapse as well Many foreign countries invested in housing in the US and saw it as an easy way to make a lot of money However when the financial crisis hit they experienced the hardship that many Americans did In addition to banks going bankrupt the crisis caused a lot of international trade to come to a standstill Countries who rely on exporting goods and tourism as a means of generating money were severely affected In addition to countries suffering from the US financial crisis many countries experienced their own crisis Spain for example experienced an increase in housing prices for several years before their collapse However like the US home values started to plummet in value once the demand for homes became less than the supply and banks started to go bankrupt 

From the original 46 cajas that existed before the crisis only 11 remained after Although the government bailed out several of these banks the government in Spain forced banks to merge One of the banks that suffered the most in Spain Bankia was bailed out by the government with a payment of 23 billion Although many banks like Bankia failed several domestic banks have been paying off Spain's debt In addition Spain's government and several domestic banks giving money to restart Spain's economy by giving money to several of Spain s larger banks In addition the EU agreed to pay Spain's banks with 122 billion in 2010 However as a result of the banks paying off Spain's debt they have become stricter in who they are giving the loans to causing a decrease in growth in Spain's economy In addition Spain plays an important role in the EU contributing to more than 12 of the EU's GDP and having the fourth largest economy in Europe This crisis emphasizes that the world is more connected and globalized than it ever has in the past and that if something that goes wrong in one country the strong possibility exists of a worldwide impact

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