The paper "Causes of the 2008 Global Financial Crisis" is a perfect example of a macro & microeconomics case study. The financial crisis of 2008 has been one of the severest financial crises that the world bodies have faced since the depression of 1930. The causes which led to the financial crisis are still a topic of discussion but major factors which have been identified to lead towards the crisis are the failure of multinational companies, a rapid decrease in the value of the assets, increase in government intervention all around the globe and a change in other economic activity which resulted in widespread depression.
To deal with such a situation in the near future a market and regulatory changes have been made so that the chances of such a situation can be reduced (Wadhwani, 2008). This paper analyzes the different reasons which can be attributed to the global crisis of 2008 and linking the same with different macroeconomic and past findings so that future policies that will help to sustain such an economic depression can be developed. One of the prime reasons which have been identified for the global crisis of 2008 is the global housing bubble collapse.
It was seen that the US housing prices on a national level collapsed by 40% which affected the securities which were linked to them causing a great effect on the financial markets (Ryuhei, 2009). Stock markets all around the globe started to fall creating a liquidity credit in the market thereby affecting the liquidity position in the global economy. The US economy was experiencing heavy growth rates during the 1940s which is shown in the chart below where the economy continued to witness rapid growth until the crisis Figure 1: US Financial Growth Rate to the Crisis The event before the crisis showed a period where the US housing prices were overvalued which led to the crash.
The entire world fraternity was of the notion that housing prices always go up and don’ t move downwards which led towards overvaluation of the houses (Ahearne, Gagnon, Haltmaier and Kamin, 2002). Low initial rates on adjustable-rate mortgages (ARM) and low down payment further ignited the situation as people with the motive of short term speculation indulged into activities that were improper.
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