Financial crises of 2007 – 2010IntroductionAs a result of the great depression that began in 1929 in USA, there was a collapse in the global financial markets which brought about significant economic downturn and severe social consequences related to a higher number of unemployed people. This study gives a systematic review of the financial crisis of 2007-20110. First, the causes of the crisis are analysed which include the growth of the housing bubble and provision of easy credit conditions. The study also examines the global financial crisis in 2007-2010 in Dubai in UAE.
The study also shows the real estate sector in USA as a world example. Dubai is one of the 7 emirates of the United Arab Emirates (UAE) and is located south of Persian Gulf. Dubai is estimated to have the largest population among the emirates and is also the second largest territory after Abu Dhabi (Cochrane and Harif, 2009). Causes of Financial crisis in DubaiThe events experienced before the crisis included the overvaluation of the house market in 2006 in United States. The price of housing was increased because of easy credit and over assumption on the belief that housing prices always increase.
The other cause of the financial crisis was the low initial rates put on adjustable rate mortgages as well as the experienced low down payment requirements. These encouraged short term speculation where seller hoped for favourable terms in future. The interest rates also rose therefore building a poor refinancing environment. The major financial institutions suffered losses due to drop on house prices and at the same time, the housing bubble grew (Hall, 2009). Effect on DubaiDubai is an investment emirate that deals with management and supervision of business portfolio therefore promoting the country as a hub for commerce and trade.
Among other emirates it bears the flag of global investments which is included in its major functions. Hall (2009) shows some of the assets owed by Dubai include DP world and Nakheel. The 2007-2010 financial crisis was the most severe since the Great depression of 1930s. The causes of the global financial crisis are still being debated through many factors are now clear for example due to failure of major corporations and decline of assets values.
Effort has been made to combat the effects of the crisis which include taking up both regulatory and market based measures. The Dubai was launched as a holding company in 2006 where it employed about 50,000 employees located in more than 100 cities. Mantel (2010) describes that Dubai has invested in extensive real estate in the US, UK and South Africa. In 2009, Dubai World decided to delay the payment of its debt and this resulted to increased risk in government default.
The delay was for about six months and the debt amounted to 26 billion dollars. As a result of this debt, many markets were affected causing a drop in indices including those of oil prices. The US traded stocks also fell through they were later rebounded. Oil prices rose by about 7 percent as well as other stock averages. With the effect of the 2007-2010 financial crises, Dubai market for real estate has declined after it had been a boom business for six years.