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The financial crisis of 2007-2008 started in the US due to the collapse of the United States housing market. The situation’s impact was felt internationally as it threatened to destroy the global financial system and resulted in the failure of numerous central commercial and investment banks, insurance firms, mortgage lenders, etc. The exact cause of the crisis is still a matter of dispute among experts, but some factors contributed. First, the United States central bank is largely to blame as it lowered the federal fund’s rates. This move allowed the commercial banks to lower interest on loans given to clients. The low interests, as well as relaxed lending regulations, inspired a rise in housing prices. Also, it motivated people to borrow too much to an extent they could not pay back the loans.
Further, the banks contributed to the crisis by offering subprime customers mortgage loans. The high prices associated with housing meant that borrowers could sell the houses at higher prices or borrow again. Moreover, this resulted in widespread securitization leading to increased prices of mortgage-backed securities in the financial markets. The regulation allowed banks to repossess property when one fails to repay the mortgage loan. So, this seems to favor the banks and customers; the share of subprime mortgages increased drastically during this period. The other cause is the partial repeal of the Depression-era Glass-Steagall Act (1933) in 1999. The change allowed insurance firms, banks, and securities companies to not only enter each other markets but also merge. This resulted in the establishment of banks which were considered too big to fail.
In conclusion, the global financial crisis is associated with certain features and conditions. First, the stock market crash normally leads to a drop in stock prices. It can be the main side effect of the international financial crisis. Also, there are the issues of decline in value of asset price due to failure by companies and customers to repay loans. As a result, financial institutions such as commercial tend to experience liquidity shortages. In general, the economic crisis is a condition where real estate or stocks unexpectedly face a decline in value.
