The Global Financial Crisis

Situated amidst 2007-2009, The global financial crisis (GFC) refers to a catastrophic collapse in the global financial market that led to recessions across the global economy. Struck by failures in the US housing market along with various other financial downturns, the crisis starting from the United States swiftly procured an international influence through international financial flows and led to losses all around the world. Unemployment sky-rocketed across economies with many banks incurring losses and bankruptcy that ultimately led to a global crisis. 

Causes of Global Financial Crisis

Consumer Confidence in Housing Markets

Evident in the booming economic growth within the US and Western Europe, the previous years of GFC showed high consumer expectations of growths in house prices and profitable returns in investment for physical assets. Such led to investors and house buyers to borrow excessively from financial institutions, varying from prices that are about the same value as the houses. The establishments for these loans continuously increase as more people seeking profits both as lenders and investors strive within an “bullish” market. 

Under-regulations and Riskiness in Loans

The form of loans that many lenders in the market are provided in bundles referred to as ‘mortgage-backed securities” which included multiple individual mortgages loans with fluctuating liabilities of returns. Amongst these loans, frauds and large values that are merely possible to return rises that further undermines the safety of these loans. However, due to the overconfidence in the market, extremely few investors doubted the risk of these loans. US Banks, Foreign Banks from Europe and Major Financial institutions from other countries consisted as some of the major investors.

Effects of Global Financial Crisis

Falls in the Housing Markets

Backdropped with lacking repayments and frauds, house prices fell to a magnified extent from the mass loans established. As a result, debts continued to sustain and lead to rising stresses to the investors. Such problems continued to be inter-connected to financial institutions of other countries 

Failures in the Financial market

Debts and stresses continuously rise across the global financial market. Notably, such stress reached its maximum led by the bankruptcy of famous US financial institutions “Lehman Brothers’. Along with many more financial failures, the global financial markets sparked mass downturns as everyone began to sell their investments. Constituting to global recessions, consumer confidences and activities underwent a sharp turn and many economies peaked its severity close to the “Great Depression”.

Reference list

Reserve Bank of Australia (2024). The Global Financial Crisis. [online] Reserve Bank of Australia. Available at: https://www.rba.gov.au/education/resources/explainers/the-global-financial-crisis.html.

Singh, M. (2023). The 2007-08 Financial Crisis in Review. [online] Investopedia. Available at: https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp.

Turner, J. (2023). Why did the global financial crisis of 2007-09 happen? [online] Economics Observatory. Available at: https://www.economicsobservatory.com/why-did-the-global-financial-crisis-of-2007-09-happen.

Wikipedia Contributors (2022). 2007–2008 financial crisis. [online] Wikipedia. Available at: https://en.wikipedia.org/wiki/2007%E2%80%932008_financial_crisis.