ipl-logo

Identify And Explain The Consequences Of The 2008 Financial Crisis

631 Words3 Pages

Financial crises are caused by unprecedented changes in the global economy such as when OPEC countries doubled oil prices in 1979 which caused a severe recession in developed countries and in turn a reduction in demand for commondities from less developed countries. All of this coupled with President Reagan raising interest rates to put a damper on inflation caused by the increased price of oil and banks giving variable interest rate loans given to less developed countries which caused tremendous levels of debt to occur to said countries (pg. 341,342) This is the primary explanation used by banks and states because it puts the blame on the global economy instead of the lender or borrower. (pg. 342) In actuality financial crises are also caused by irresponsible behavior on the part of both the lender and the borrower. …show more content…

[insert example 2008 financial crisis] Borrowers can be guilty of seeking out private loans in order to avoid making economic reforms that would be required to borrow from the IMF. The consequences of this "easy way out" borrowing can be poor investments or misuse of funds made by the borrower that do not increase growth or productivity which inevitably leads to the borrower defualting on the loan. This can be seen in Latin America during the 1980s financial crisis where Brazil, Mexico, and Argentina had tremendous debt service ratios due to using import substitution policies instead of export-led growth policies used by many East Asian countires which would have allowed them to better tend to their debts. (pg.

Show More
Related
739 Words | 3 Pages

Overall, it was the combination of the desire for money mixed with ignorance towards making quality financial decisions that led to the financial crisis. 2. In the past, to get a mortgage you had to go through a series of steps; list them. Show up at the bank with tax records, pay stubs (to verify your income) and proof that you have enough savings to make a 20% down payment

Read More
181 Words | 1 Pages

If there was ever a word to describe the events that led up to the financial crisis of ’08, “Moral Hazard” would fit the bill perfectly. Moral hazard happens in financial terms when the success of a particular transaction is very heavily dependent on the performance of a particular party’s obligations, but where a particular party has no interest or incentive to carry out that obligation diligently. Let’s for instance take the example of a loan worth $720K, which was given to a strawberry picker earning around$14K/year to acquire a certain piece of property in the early 2000’s . In this case moral hazard was there and existed because the loan company intended to sell the loan forward to the credit rating agencies due to the inability of the

Read More
426 Words | 2 Pages

Inflation, played a role in the crash, “an unwarranted increase in currency and bank credit” (Patterson). Employment is what led to people not able to make payments back to the banks, which in turn made the banks fail. Some people were even taking out their money of the banks which also forced banks to close.

Read More
878 Words | 4 Pages

The timing of these failures, the bank’s lack of dealing with them effectively, and the brevity of the Stock Market Crash caused the economy to suffer

Read More
782 Words | 4 Pages

The real problem that lead America to an economic crisis is when the Federal Reserve began printing excess money, in which Coolidge did not recognize until it was already a

Read More
742 Words | 3 Pages

Due to the Dust Bowl farmers were defaulting on loans which was a huge cause of bank failures. Also in 1933, the Federal Deposit Insurance Corporation was created to ensure people's deposits, which now insures $250,000 per bank. Another big cause of the banks failing was because the Great Depression caused people to all withdraw their money at once, which created a huge run on banks. People still debate if the banking system collapse caused the great depression or if the great depression caused all the bank failures, and you can find evidence to show both sides were

Read More
1604 Words | 7 Pages

For example, the stock market’s tumble led to the failure of many thousands of banks in the coming months, this panic led to bank rushes, where people were desperately trying to withdraw all of their savings before the banks were forced to shut down. In turn, these bank rushes caused many more banks to collapse, and the vicious cycle continued. Over 9,000 banks failed by the end of the decade (Kelly). Furthermore, with lack of money in cycle, people began spending less on commercial goods, and the economy suffered as a result. Many banks, much to their customers’ dismay, had invested a good chunk of their money in the stock market, so as Americans rushed to take their money out, they were stunned to learn that much of it wasn’t there.

Read More
782 Words | 4 Pages

1) Calls for protectionism are greater during share economic contraction than during boom periods as people want to protect jobs and unions meet with the management to see forth towards this issue. Also, when the economy is low a business would want the demand for their products to be high and will seek to face less competition, thus trade barriers are set up by governments to protect domestic business against the international market. Other ways to protect jobs or business would be a requirement for licensing or the absolute banning of import products in the countries. 2) This is so as since the World trade organization monitors the actions regarding trade laws in the countries, imposing of barriers may not be considered fair as per the

Read More
695 Words | 3 Pages

This is a large-scale problem because the United States is unable to pay the money borrowed from the foreign countries back, due to the large about of debt that they are now in. The United States will be like this for a long period because the debt keeps growing and will continue to grow and change daily due to the side effects from this crisis.

Read More
1758 Words | 8 Pages

The economy plummeted because of over-loaning. Which is a simple way of saying that the bank gave out many loans and didn’t control it until it was too late. This collapse of the economy was disastrous for the nation’s economy. The panic led to unemployment, failed businesses, rail delays, and bank trouble. President Ulysses Grant was partially blamed for the panic of 1873 since the panic first started in Europe and spread to the United States of America.

Read More
878 Words | 4 Pages

People started to sell their debts but since everyone was selling at once nothing was being sold. The Great Crash wiped out all stock gains from previous years, so most investors would wait their entire adult years to see their investors break even. American proposition on international trade and international debt structure was another main cause. Europe puts a tariff on the United States’ response, so we put a tariff on them because of the international trade was already hurting. The United States refuses to forgive any any debts, so instead the U.S banks lends money to Europe to pay back.

Read More
486 Words | 2 Pages

In this class, I have learned a lot about financial institutions, their management functions, and real world events that both corroborate and refute financial institution policy used to govern and stabilize the economy. The Financial Crisis of 2008 happens to be one of the largest crises to occur during my lifetime, so it is no surprise that one piece of information I learned in class, that I believe I will be likely to remember five years from now, is in regards to this crisis. This piece of information is how badly constructed incentive plans and poor governance lead credit rating agencies to be one of the key instigators of the Financial Crisis. In this response, I will discuss why I believe myself likely to remember this fact and how I could practically apply it in my personal or professional life.

Read More
511 Words | 3 Pages

A Financial Crisis “occurs when one or more financial market or intermediary ceases to function or function only erratically and ineffectively.” (Robert E. Wright and Vincenzo Quadrini 2009) During the Great Depression the Federal Reserve made some mistakes in preventing such an ugly outcome. Firstly, allowing the stock prices to rise so quickly in the 1920’s caused the enormous inflation of the asset bubble in 1928 allowing the greatest recession to occur shortly after.

Read More
298 Words | 2 Pages

One of the most harmful and horrific events to ever occur against our economy was known as The Great Depression. A more recently previous downfall was called The Great Recession. The Great Depression lasted from the year 1929 to 1939, which made this our longest-lasting economic drop in history. This began after a stock market crash in exactly October 1929, which caused an alarm and completely wiped out millions of investors involved.

Read More
1461 Words | 6 Pages

Understanding Financial Crisis: Causes, Effect and Prevent measure To most ordinary people, Financial Crisis is a both familiar and unfamiliar topic. There is a range of definition of the Financial Crisis, but in general it is refers to the crisis of financial assets or financial markets or financial institutions. In fact, Financial Crisis is closely related to people’s life, 2007-2008 Global Financial Crisis attracted ordinary people to focus on the financial sector. This essay will argue the financial crisis of 2008 came from the US subprime crisis, which has brought enormous impact on the world economy, and in different societies, the countries have different prevent measures to cope with the crisis. For the aspect of cause, the US subprime

Read More

More about Identify And Explain The Consequences Of The 2008 Financial Crisis

Related Topics

Open Document