The Global Financial Crisis

The global financial crisis The global economic crisis is worst crisis that has attracted the global attention of international leaders. Economists view the financial crisis as worse than the Great Depression of 1930. The crisis resulted in the collapse of major banks, stock market collapse as well as the decline of the real estate market. The collapse of the major institutions contributed to high levels of unemployment. Most of those who lost their source of livelihood were employed in the banking sector, real estates, stock market, and other businesses and industries (Gorton and Metrick, 2012). Various scholars and professional writers have analyzed the crisis, the causes and measures taken to minimize its effects. This research will find out the causes and how it affected the world economy. Contributing factors to the global financial crisis The crisis is believed to have started in the US, which is the largest economy in the world. This started when the government allowed the Lehmann Brothers to be declared bankrupt. This resulted in the major US banks to be declared bankrupt. The Subprime real estate market was also growing at the time. The housing sector was also experiencing a boom from 2006, and most residents were taking mortgage loans. However, starting 2008, the prices began to decline. The subprime borrowers were attracted by the below market rate loans to continue investing in the sector with the hope that the prices would increase (Geiger and Raghunandan, 2014). Furthermore, major banks were also taking advantage of the situation by getting involved in high-risk lending. They aimed at reaping big despite the shaky economic situation. There was an increase in subprime lending without investigating the credit history of the borrowers. Most of those involved had a poor credit history and were prone to default payment of the bank loans. Banks also res...

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