Essay On Financial Crisis

Compare and contrast major financial crises that the world has encountered

2008 crisis compared with other recent ones; reason behind them and consequences

Introduction

A financial crisis is a phenomenon whereby the nominal value of financial assets, such as bonds or stock prices, falls drastically, leading to cascading ravages on the particular sector affected as well as the whole economy, be it local or global. Ever since the inception of modern banking and the creation of novel financial services, as early as in the 17th century, there have been documented cases of financial or economic crises. Some examples include the Credit crisis of 1772, whereby the collapse of the banking house Neal, James, Fordyce and Down

This unwillingness to repay its liabilities may result in international embargoes and in extreme cases declaration of war by its creditors which will plunge the country into an economic recession.

2007 Financial Crisis

This financial crisis was the most important and devastating one to have hit the world since the Great Depression of the 1930s. Both of these crises originated from the United States even though the causes which created them were different.

The crisis was triggered by the American Housing bubble burst which occurred in the period 2005-2006, also known as the Subprime Mortgage Crisis. Following the Russian and Asian crises in the late 1990s, American Banks, fueled by foreign funds, lent out aggressively to subprime borrowers for the purchase of houses. With the boom in the housing sector in the United States, several investors and institutions across the globe invested heavily in Mortgage-Backed Securities(MBS) and Collateralized Debt Obligations(CDO), which are financial instruments whose intrinsic value depend on the mortgage payments and prices in the housing