The history of modern finance starts from the 18th century with the United States’ first treasury bank. Several financial crises occurred along with the economic development, but in 2008, world faced the most dangerous one. The process started in 2007, with three major steps: 1.American banks issued too much money; 2.Housing prices drastically rose; 3.At the end of 2008, the financial speculations were at their height.
In the run up to the financial crisis, US banks issued huge sums of money by making loans. In the beginning of 2007 United States’ Treasury developed a policy which proposed reducing the Minimum Reserve Requirements for commercial banks. Simultaneously, the American people’s demand on credit cards and desire to own real estates also increased. For instance, in the first part of 2007 the 32% of all loans consisted of mortgages and 20% went to commercial real estates. Later, in the beginning of 2008, there was a breakthrough in the inflation of the US Dollar which encouraged the process to exceed.
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People’s revenues were overlapped by the costs of interest rates and housing prices. Hence, either they had to sell their houses to pay the debts or banks took their estates to cover the loans. Americans could not afford to pay the debts and Banks could not give more loans. By way of illustration, in March, 2007, the revenue from real estate market decreased by 13 percent compared to 2006. Furthermore, on September 14, 2008, the American Financial institution Merrill Lynch sold itself to the Central Bank of America for $50 billion, half of its market value within the past