Causes of the 2008 Financial Crisis

Topics: Subprime mortgage crisis, Financial crisis of 2007–2010, Financial crisis Pages: 8 (2668 words) Published: June 23, 2013
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Causes of the 2008 Financial Crisis
a) Financial crisis definition
Financial crisis is defined as the financial meltdown, or in other terms as the credit crunch. A financial crisis is an economic incidence makes it hard to obtain and access the capital for use in investment. The economic crisis is an ongoing economic problem that was more pronounced in 2008 resulting in the liquidity in the global credit markets and its financial systems (Berlatsky 77). This means that there was no credit available for the investors, which adversely affects the poor countries. For the developed countries, this crisis created panic and was perceived as the most horrible in the previous years. It was equated to the 1930 depression of the economy. In addition, to understand the causes of the financial crisis in 2008, it is crucial to know that it is a representation of the fall of the interlocking set of the organization, governing the economy since the 1980s. The financial crisis has numerous dimensions (Wallison 31). For example, the build of debt, signified by the household and corporate debts, but majorly the household debt played the major role. Furthermore, the possibility of recurrence of the international monetary instabilities and the global refusal to fund the US and the UK economic crisis is one of the dimensions of the financial crisis. The third factor that can affect the economy is the ecological crisis, which brings the possibility of the prospects of a stop to the decline in the prices on goods and services, which can be seen as the medium term development and the determination of the underlying tensions requiring immediate changes (Gup, 2010). It is important to define the competing strategies of capital for investments in the attempt to manage the crisis. b) Past financial crisis

I) Worst Economic Slowdowns in History
The end of the First World War ushered in the beginning of a new era in the history of the US. Enthusiasm, optimism and confidence marked this era. During this era, the invention of airplanes and more of the electronics made life easier. The stock market was not perceived as a risky investment as this investment seemed as a business that could not fall. However, as the numbers of the people investing in the stock market as on the rise the stock prices began to rise and was clearly seen in the 1925. The stock prices began to fluctuate up and down throughout the consequent two years, followed by an upward trend in the year 1927. In 1928, the market boom transformed the perception of investors for the possibilities of making long-term investments in the business. The interests in the market increased as most of the people believed that this was the only mechanism through which they could be rich. The whole of this processes culminated in a financial recession reaching its peak in 1930 (Gup 74). The 2008 economic crisis is a representation of fall of the set rules to govern the global economy since the 1980s. Some of the set rules are a representation of the solution for capital for investment that had emerged in previous decades. The 1970s crisis and its attempts to be resolved in the 1980s was due to the contradiction a midst capitalism, exemplified by the creation of profits and the realization of the profits in circulation and in the exchange of the currency (Kolb 23). The crisis during this period was increased by the historical weakness of the British capital that left the UK vulnerable to the economic crisis. Most of the banks were ready to lend, therefore, imposing cheap lending rates, with even borrowing with later interest rates, created the debt crisis for the poor and middle class economies. The financial crisis in the 1980s led to the coming up of the new just financial order by the WCC. Some countries, such as the Asian countries, were elevated by the speculative transformation of money into the form of commodities that could be...

Cited: Berlatsky, Noah. The global financial crisis. Detroit, MI: Greenhaven Press/Gale Cengage
Learning, 2010
Cline, William R. Financial globalization, economic growth, and the crisis of 2007-09.
Washington: Peterson Institute for International Economics, 2010
Dalton, John M. How the stock market works. 3rd ed. New York: New York Institute of Finance,
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Darity, William A. International encyclopedia of the social sciences. 2nd ed. Detroit, Mich.:
Macmillan Reference USA, 2008
Gup, Benton E. The financial and economic crises: an international perspective. Cheltenham:
Edward Elgar, 2010
Kolb, Robert W. The financial crisis of our time. New York: Oxford University Press, 2011.
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Wallison, Peter J. Dissent from the majority report of the Financial Crisis Inquiry Commission.
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