The Financial Crisis Of The 2008 Credit Crunch - 1367 Words

The 2008 credit crunch was driven by a severe delinquency on sub-prime mortgages, which started mainly in the summer of 2007 in America and subsequently had a spill over affect as it spread globally due to shortages of funds in the banks, hitting markets all over the world. This started with a ‘housing boom’, whereby there was plenty of incentives for people to ask for mortgages off banks due to the low interest rates they had to pay. At an early stage the banks saw great repayments and a great way to invest their money, this soon collapsed back on the banks as inflation started to rise significantly in 2007; consequently leading to a rise in interest rates as well. People were then left with a case where they could no longer afford to pay†¦show more content†¦Full employment is unattainable in reality as there will always be factors which prevent or unable certain groups in society from working, for example: the sick, disabled, cultural reasons or those in sear ch of a job. On the other hand low unemployment is desirable by all governments, in the UK low unemployment will lead to less money going on benefits which will further result in more money from our taxes going into other government spending opportunity costs such as the NHS, education or on subsidies for new businesses. There are 4 main causes of unemployment. Frictional unemployment, which occurs when people are in search of a new job or are new entrants to the job industry. Secondly, structural unemployment can be seen as a modern type of redundancy as machines are taking over jobs which were previously done by workers (this causes a decrease in demand for that type of labour). A further cause for joblessness which is linked to structural unemployment, was brought up by Keynes as ‘technical unemployment’ , which talks about the old and out of dated skills some people may have that are now useless to our world and not in demand anymore. Lastly, there is cyclical unem ployment, also known as demand deficient unemployment which Keynesians talk about, this type of unemployment is mostly seen when there isShow MoreRelatedSome Causes of the Credit Crunch Essay979 Words   |  4 PagesCredit crunch is a normal phenomenon. Every economy faces it. It is a situation where â€Å"there is reduction is the availability of loans in the market in spite of the increase in interest rates†. (Turner, 2008) This results in a mismatch. It is a situation where â€Å"the interest rates don’t match with the credit availability as a result the relationship gets hampered†. (Turner, 2008) It is a situation which happens during recession. It is important to find out the reasons. Some of the reasons for it are Read MoreCredit Crunch And Its Effects On The Economy1451 Words   |  6 Pagesdifferent reasons and causes. Credit crunch in 2007 was one of the unforgettable situations which has been considerably affecting the global economy until now. Grea t recession started from the US and hit many countries around the world as it is the biggest financial market. Credit crunch refers to a sudden shortage of funds for lending, leading to a resulting decline in loans available (Pettingger, 2011). Credit crunch was one of the ‘cruel’ outcomes from the 2007 subprime crisis in the United States, whenRead MoreMonetary And Fiscal Policies And Weighing Up How Effective The Coalition Have Been Improving The British Economy1491 Words   |  6 PagesIn this essay I will be examining how the financial crisis in 2008 caused the UK government to change their aims and policies to aid recovery. I will be looking to both monetary and fiscal policies and weighing up how effective the Coalition have been in improving the British economy. I will be comparing the aims and policies to those of other countries and evaluating what has restricted the UK economy from growing. The global credit crunch of 2007-2008 had a rippling effect on economies worldwideRead MoreThe Global Financial Crisis Of 2008-10 And Its Impact On The Financial Health Of The Institutions999 Words   |  4 Pages The Global financial crisis has been described as the worst financial crisis after the Great Depression of the 1930’s. This was a Financial Crisis and affected terribly the banks of the United States of America. The banks during this time had low capital base and suffered from a serious liquidity crunch. Leveraging was very common at this time. This increased financial instability of the banks called for major changes in the financial regulations by the government. This essay will discuss theRead MoreTheu.s. Housing Market And The U.s. Financial Crisis1448 Words   |  6 PagesThe credit crunch, which occurred in the U.S. housing market between 2007 and 2009, led to the biggest global financial crisis. The impact of this crisis extended over the world, and the economies of many countries were damaged. Kawai stated that: ‘The ongoing global crisis has had a profound impact on the Asia and Pacific region, particularly on its exports.’ (2009:1) There were a lot of factors which brought about the crisis. Due to limited space, this essay will look at the U.S. housing marketRead MoreEssay about Unemployment vs. Inflation895 Words   |  4 Pagesinflation. After the 9/11 attacks in New York, the United States was put in a tragic financial crisis that led to the recession in 2008. While the debate for the causes of the 2008 recession continue to develop, most focus on the role that the public monetary policy and the practices of private financial institutions played on the financial crisis in the United States. Some economists claim that the origin of the crisis can be traced to the indebted US economy. The Fed’s misperception of costs and benefitsRead MoreFinancial Crisis : Fiscal Crisis1542 Words   |  7 PagesFinancial Crisis: 2008-2009 In early 2000s, most private and public budgets in the U.S. were funded through local and sovereign debts. In this regard, staggering mortgage industry, weak fiscal policies, and unscrupulous financial investors principally contributed to the 2008-2009 financial crises. Due to surging inflation and accumulated interests, most borrowers failed to payback their loans due to continued bankruptcy. Consequently, interest rates in various countries were adjusted to balance theRead MoreThe Loose Noose : Failure Of Regulators1333 Words   |  6 Pagesmoral hazard and this happens to be an expensive mistake and as Lehman file for bankruptcy, this passed a wave of panic in the already falling markets and trust – the key element of the market is lost leading into the 2007-08 financial crisis. Consequences of the 2007-08 crisis Immediate aftermath The very first after effect of the economic downturn is the plummeting of housing prices. As more and more borrowers defaulted, the mortgages were foreclosed pushing more and more houses into the market.Read MoreThe Great Recession in the year 20081063 Words   |  5 Pagesyears when world real GDP growth is (1) below 2 percent, (2) more than 1.5 percentage points below the previous five-year average, and (3) at its minimum relative to the previous two years and the following two years. 1975, 1982, 1991, 2001, and 2008 Freund (2009) describes the evolution of world trade following four previous global downturns. She finds that the size of the decline in world trade during these episodes is almost five times the corresponding decline in world GDP. She also findsRead MoreGdp Of The Us, Eu28, Canada, And China1348 Words   |  6 Pages Student: An Nguyen Dr: Konou ECON 602 McNeese State University I. GDP for the US, EU28, Canada, and China. 1. The USA Figure 1.1: GDP of USA from 1995 to 2014 The United States experienced a crisis in 2008, whereas incentive is the major problem (Kohn, 2009). Incentives make lenders ignore underwrite â€Å"because they did not intend to hold the loan themselves†. Furthermore, from the experience gathered by many years, the GDP increase gradually and show a good economic trend; those investors