Global Financial Crisis Essay - 2233 Words

The Global Financial Crisis that occurred in 2008 and crippled every major economy was not an accident; it was caused by an unregulated and uncontrolled financial industry. Decline of Real Estate Value The financial crisis is considered to have its roots in the United States where there was an increase in loan losses for subprimes. Banks were lending money to people that did not have the capability to maintain a regular repayment schedule. Homeowners only had the ability to pay the interest on their mortgage and never pay the actual principle amount. When the interest rate began to increase, homeowners could no longer afford the interest payments required. Housing prices began to fall and debtors found that they could no longer afford†¦show more content†¦The biggest issue since the Great Depression was to continue regulating the financial sector to avoid the same crisis that the United State had just suffered. However, for regulations to be implemented effectively, it was crucial that it was well designed; even then there was a possibility that it might not work. Greed and vested interest are likely to hijack the politics of regulation design. In the 1980’s the financial industry exploded. Investment banks went public giving them the ability to get additional funds from stakeholders to spend. Investing companies began to become richer and more powerful than ever before. When Ronald Reagan became President of the United States, a 30-year financial deregulation began with the support of economists and financial lobbyists. The Regan administration began to deregulate savings and loan companies, allowing them to make riskier investments with depositors’ money . Hundreds of saving and loan companies failed in their investments and in the end of the decade declared bankruptcy. The memories from the earlier great Depression began to diminish and the government stated that the marketplace must be set free. This led to the precautionary rules to be scrapped. Together with looser lending standards for other kinds of consumer credit, this led to a radical change in American behavior. A New Era After the major failure of many savings and loansShow MoreRelatedThe Global Financial Crisis And The Crisis Essay1244 Words   |  5 PagesIntroduction The Global Financial Crisis, also known as The Great Recession, broke out in the United States of America in the middle of 2007 and continued on until 2008. There were many factors that contributed to the cause of The Global Financial Crisis and many effects that emerged, because the impact it had on the financial system. The Global Financial Crisis started because of house market crash in 2007. There were many factors that contributed to the housing market crash in 2007. 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