2008 Financial Crisis Essay

Since the Great Depression that originating in the United States during the period of 1930’s, the financial crisis happened in 2008 became the harshest financial event and had reshaped the world in finance and investment banking. The global economic crises started in 2007 with credit squeeze causes the United States investors have loss confident in sub-prime mortgages which lead to liquidity crises. As a result, the US Federal Bank interjects a lump sum of capital into financial market. The full impact was felt by the world when the bankruptcy of the investment, Lehman brother in September 18, 2017. The crisis had aggravated as stock market around the world collapse and become highly volatile. This incident causes increase in unemployment around 30 million across the globe and contraction in Gross Domestic Product. …show more content…
The lenders offer a large number of funds to borrowers with poor credit which lead to a high risk of default. As the housing price hike causes many household could not repay their mortgage payment. Bank face difficulty when the house and land was worth less compare to the fund that they had lend out which causes sub-prime model burst. When the mortgage issuers sell their mortgages to the investment bank, the situation is getting worst because the investment bank readjust the mortgage and trade off to the investment to earn more funds. As time pass, the mortgages become less and they started to repackage them to mortgage-backed securities. In theory, the merge of different mortgages reduced the risk but the majority of mortgages were poor quality and are overestimated the rating of the mortgages. The bubble was more affirm in California, Dubai and part of the US northeast. Investors start to lose confident in the rating in the banks. Bear Sterns make a proclamation that they have great losses in two hedge funds because both of the hedge funds are expose to subprime asset in June 2007. This incident causes the client are unable to