The 2008 Financial Crisis: What Caused It?

The 2008 Financial Crisis: What Caused It?

The financial crisis was the worst economic disaster that has happened since the Great Depression in 1929. It occurred even despite the failed attempts of the Federal Reserve and the Trusty Department efforts to prevent it. But why did they fail? How did they not manage to prevent it? What did they need to do to prevent it that they didn’t do and why did they not do it?

I believe it occurred because in 2006 house prices started to fall; this was the first sign that the economy was in trouble. People didn’t listen or pay attention and things continued the way they were, which meant that in 2007 the real crisis began to unfold…

The insurance companies that gave them credit default swaps (and they thought had protected them), failed to have enough money to continue the swaps. Banks panicked when they realised that they would have to absorb their losses. As a result, interbank borrowing costs rose. This mistrust within the banking companies was the primary cause of the 2008 financial crisis. However, there were a number of other causes which lead up to the financial crisis, such as: overdependence on securitisation; regulatory issues; remunerations, etc. It can be argued that banks ignored the growing percentages of risks rising and continued to gamble with people's money. It was like they were trying to play with fire/desperately attempt to keep everything afloat. Perhaps they thought that if they continued, the problem would go away. This was incredibly naive; despite this, we do know that it lead to high interest rates and inflation, as well as slowing down the global economy.

The financial crisis not only showed us the flaws and weaknesses in our banking system, but it also made an impact on the lives of the people living in that time period. Money was scarce- people struggled keeping houses and did not have enough money to spend, they could only spend it on essentials (such as food, water, clothing, etc…). Jobs were scarce- many well-established businesses collapsed- people could not find jobs, so they could not work, meaning that they could not earn money to help them and their family. Even the richest of people fell from grace. People lost everything. If you did have a job you were among the very few. Interest rates increased- banks would only lend out money for a high interest rate in return, meaning that most people could not afford them anyway. House prices fell- if you owned a house that you wanted to sell and that house fell in value to less than you owed the bank then you had a problem on your hands, as you had to find more money to pay back what you owed without getting it from selling your house.

Since the crisis, we have slowly started to recover (last year the country was almost the fastest growing economy in the Group of 7), despite this a large amounts of cities in the midlands and the north, and additional parts of Wales and Scotland remain significantly below where they were before the crisis which happened over a decade ago. The recovery of the financial crisis is rarely discussed, but it matters greatly because even with one of the fastest growing economies in the world last year, many places remain significantly poorer than they were years ago. The bank of England now expects slower growth this year, pay to fall and household incomes to fall. The government will need to address these fatal problems, which have existed for a number of years in order to avoid another crisis - especially in the current wobbly climate of pre-Brexit Britain.

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