Financial Crises

The finanacial crisis which took place in 2007-8 was named the finanacial crisis, but there have been many financial crises in the past. From as far back as the Roman times and previously to the present, companies have fallen, currencies have lost their value and the general financial position of countries have financially decreased. Many of these catastrophies have taken place, but what caused them and how can we learn from our past mistakes to prevent this from happening once again?

There are many types of financial crisis, but generally, a financial crisis is when financial assets such loans and deposits lose lots of their value. It can also be when the value of a currency drastically decreases, causing the country and its banks to become very poor. This has happened countless times before for many different reasons.

In Ancient Rome, in AD 33, a severe financial crisis came about as loans from the wealthy to the public became less abundant. Many important or influential figures would loan money to the public with interest. As the value of land and other things fell, people found it hard to pay back their money and many fell into debt, causing a crisis.

In the 17th century, in the Netherlands, tulips became extremely popular, with people paying vast sums of money to purchase them. Many speculators would buy tulip bulbs and then sell them for a higher price making lots of money. Houses, companies and estates were put on mortgage or even traded for new or rare varieties of tulip. Then, suddenly, in 1637, the tulip industry collapsed, and tulips went out of fashion. This meant that many tulip companies collapsed, speculators lost all their money and those who had put their property on mortgage or sold it were suddenly unable to pay back their debt. This was a huge financial crisis.

The credit crisis of 1772 started in England but quickkly spread to the whole of Europe. It was caused by the collapse of the bank Neal, James, Fordyce and Down. The bank collapsed when Alexander Fordyce fled to France to escape having to repay his debts or being charged for not repaying them. This meant that the public lost their trust in banks, meaning that less loans and credit was taken out. As London's economy mostly depended on credit and loans, this caused a huge financial crisis throughout Europe.

An example of a huge financial crisis is the Great Depression. After WW1, especially in America, tens of thousands of people lost their jobs, and the country's financial stability collapsed, America's GDP decreased drastically and their trade lost over half of what it was worth previously. It was thought to have been caused when stocks, shares and investments lost their value, and were bought and sold at very high prices. The stock market crash caused customers and consumers to lose their trust in the market and the loss of spending and speculation meant that many companies went out of business, slowed down their production and started firing workers. Even those still employed were paid very little and this lead to an increase in famine, unemployment and homelessness. This was arguably the largest and worst financial crisis in history.

A huge oil crisis in America and its allies took place in 1973, when the Organization of Arab Petroleum Exporting Countries refused to continue to sell oil to the USA, Canada, the UK, Japan, the Netherlands, Portugal, what was then Rhodesia and South Africa. The price of oil rose during the embargo from $3 to $12, which continued to affect gobal economy and politics for many years to come.

And, of course, there is the Financial Crisis. you would think that Britain and other countries would have learnt from previous crises and been sensible enough not to have another, but was it actually preventable? And how can we learn from our mistakes?

Please comment below.

Comments (9)

  • Olivia-Avatar.jpg Olivia @ Topical Talk
    05 Nov 2018

    Fantastic storytelling and curiosity shown here! Well done for researching all of these different events and for writing about them in your own words. This is exactly the type of post we love to see on the Hub! I really like that you have asked some questions to start the conversation.

    Even if we learn from mistakes, do you think that crises like this are an inevitable part of a an economic system, that are very hard to avoid altogether? Or do you think something, realistically, can be done to stop them?

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    1. Graveney-logo-250x250.jpg beloved_chocolate | Graveney School | United Kingdom
      Olivia @ Topical Talk's comment 06 Nov 2018

      I think that financial crises are an inexorable part of any financial and economic system, but there are things that can be done and regulations which can be put in place to reduce the severity of their consequences.

      One option is for banks and those lending money to make sure that the people who they are lending money to are able to pay it back. This would mean that banks would not run out of money, which could make people very poor. They would not lose as much money from people not paying them back if they made sure that the borrowers could pay the money back. People may argue that this means that people who need to borrow money to live and support their family would not be able to take out the loans which supply them with their daily needs. However, this could be solved with a bit of government funding. If the government set up banks solely for the lending of money to those in need, without the guarantee that it would be paid back, then people who are in need of money can access it, and pay it back best they can, without interest or a restricted time period. This, as well as reducing the probability and severity of financial crises, could also help to combat poverty. Such a thing as this could also be set up by a charity.Money for this could come from taxes, or, in my opinion, I think that the government spend too much money on nuclear defence, we could be used to fund this scheme.

      Another thing would be to teach the general public about how the economic system works and how they can help to keep it stable and intact. If the public new about the financial system, then they could make choices more knowledgeably and sensibly, reducing the risk of economic collapse. If they were taught about the causes of previous crises, then they may be able to react more sensibly.

      As well as this, to prevent or reduce the severity of crises, I think that it should be checked that banks, their owners and their employees are not in large debt, corrupt, making illegal deals, or doing illegal things. If all the people who were doing this were stopped, then lots of money could be saved and responsible, competent, financially inept, efficient and learned people could be put in charge, who would handle the banks much more safely and trustworthy.

      I think that financial crises cannot be prevented, but they can be hindered, and we must do the best we can to prevent them, even if it is impossible.

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      1. Tiff-Avatar.jpg Tiff @ Topical Talk
        beloved_chocolate's comment 07 Nov 2018

        I've given this comment a star as you've shown fantastic curiosity in investigating options for fair lending. We'd love to hear more abut your ideas in your final piece at the end of the issue.

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      2. Boutcher-logo-250x250.jpg impartial_panda_bear | Boutcher C of E Primary School A | United Kingdom
        beloved_chocolate's comment 10 Nov 2018

        Wow beloved chocolate! I really loved your post. I agree that financial crises can be hindered though if the bank thought about everything it did, thought through their future and all the probabilities, found out more about financial crises ( like you've done) and let the public give some of their opinion on what banks should and should not do, then I think we can possibly avoid financial crises.

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  • Ben-Jonson-logo-250x250.jpg unique_cat | Ben Jonson Primary School
    12 Nov 2018

    I agree with you beloved_choclate.

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  • Ilse-Loewenstein-logo-250x250.jpg beloved_wildcat | Ilse-Löwenstein-Schule
    20 Nov 2018

    and I think we have to take better care of our finances

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