Wall Street Crash

2007–2008 financial crisis

The 2007-2008 financial crisis, also known as the global financial crisis, was a major economic downturn that had a significant impact on the global economy. The crisis was caused by a combination of factors, including the housing market collapse, the subprime mortgage crisis, and the credit crunch.

The roots of the crisis can be traced back to the early 2000s when the US housing market was experiencing a boom. Low-interest rates and lax lending standards led to a surge in demand for housing, which caused housing prices to skyrocket. Banks and other financial institutions responded by offering subprime mortgages, which were loans that were given to borrowers with poor credit histories.

These subprime mortgages were then packaged together into complex financial instruments called collateralized debt obligations (CDOs) and sold to investors around the world. However, as more and more people defaulted on their mortgages, the value of these CDOs plummeted, leading to huge losses for investors and financial institutions.

The crisis reached its peak in September 2008, when Lehman Brothers, one of the largest investment banks in the world, filed for bankruptcy. This event triggered a chain reaction that caused the credit markets to freeze up, as banks and other financial institutions stopped lending to each other out of fear that they would not be repaid.

The impact of the crisis was felt around the world, as the interconnectedness of the global financial system meant that the effects of the crisis spread quickly. The stock markets crashed, businesses failed, and unemployment rates soared. Governments around the world responded with massive stimulus packages and bailouts of financial institutions to try to stabilize the economy.

The crisis led to significant changes in the financial industry and in the regulatory environment. Governments around the world implemented new regulations to try to prevent similar crises from happening in the future. Banks and financial institutions tightened their lending standards and risk management practices to try to avoid the kind of risky lending that had caused the crisis.

Despite the efforts to prevent future crises, there are still concerns about the stability of the global financial system. Some experts argue that the reforms implemented after the crisis were not sufficient and that there are still systemic risks that could lead to another crisis.

The 2007-2008 financial crisis was a sobering reminder of the fragility of the global financial system, and of the importance of responsible lending and risk management practices. It had a significant impact on the global economy, and its effects are still being felt today. While much has been done to try to prevent similar crises in the future, there is still much work to be done to ensure the stability of the financial system and the health of the global economy.

Jerrin PhilipLast Seen: Feb 13, 2023 @ 3:33pm 15FebUTC

Jerrin Philip


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