The 2007–2012 global financial crisis, also known
as the Global Financial Crisis and 2008 financial crisis, is considered by many economists to be the worst financial crisis since
the Great Depression
of the 1930s.[It
resulted in the threat of total collapse from large financial institutions, the
bailout of banks by national
governments, and downturns in stock markets around the world. In many areas,
the housing market also suffered, resulting in evictions, foreclosures and prolonged
unemployment. The crisis played a significant role in the failure of key
businesses, declines in consumer wealth estimated in trillions of US dollars,
and a downturn in economic activity leading to the 2008–2012
global recession and contributing to the European
sovereign-debt crisis.[
The active phase of the crisis, which manifested as a liquidity crisis, can
be dated from August 7, 2007 when BNP Paribas terminated
withdrawals from three hedge funds citing "a complete evaporation of
liquidity".[4
The bursting of the
U.S. housing bubble,
which peaked in 2006,[5]
caused the values of securities
tied to U.S. real
estate pricing to plummet, damaging financial institutions globally.[6][7]
The financial crisis was triggered by a complex interplay of the overvaluation
of bundled sub-prime mortgages, questionable trading practices on behalf of
both buyers and sellers, and a lack of adequate capital holdings from banks and
insurance companies to back the financial commitments they were making.[
Questions regarding bank solvency,
declines in credit availability and damaged investor confidence had an impact
on global stock markets,
where securities suffered large losses during 2008 and early 2009. Economies
worldwide slowed during this period, as credit tightened and international
trade declined.[11]
Governments and central
banks responded with unprecedented fiscal stimulus, monetary policy
expansion and institutional bailouts. Although there have been aftershocks, the
financial crisis itself ended sometime between late-2008 and mid-2009.[1
In the U.S., Congress passed the American
Recovery and Reinvestment Act of 2009. In the E.U., the U.K. responded with
austerity measures of
spending cuts and tax increases without export growth and it has since slid
into a double-dip recession.[
Many causes for the
financial crisis have been suggested, with varying weight assigned by
experts.The U.S. Senate's Levin–Coburn
Report asserted that the crisis was the result of "high risk, complex
financial products; undisclosed conflicts of interest; the failure of
regulators, the credit rating agencies, and the market itself to rein in the
excesses of Wall Street. Two factors that have been frequently cited include
the liberal use of the Gaussian
copula function and the failure to track data provenance.The 1999 repeal of
the Glass–Steagall
Act effectively removed the separation between investment banks and
depository banks in the United States Critics argued that credit rating agencies
and investors failed to accurately price the risk involved with mortgage-related
financial products, and that governments did not adjust their regulatory
practices to address 21st-century financial markets.In response to the
financial crisis, both market-based and regulatory solutions have been
implemented or are under consideration. Paul Krugman, author of End This Depression Now! (2012), argues that
while current solutions have stabilized the world economy, the world
economy will not improve unless it receives further stimulus. Buchanan, Gjerstad,
and Smith argue that
fiscal and monetary policy are ineffective, failing to reignite residential
investment and construction as they have in past contractions. The current type
of contraction requires balance sheet repair via currency depreciation and
export-driven growth. Fiscal stimulus extends a current account deficit and
retards export growth. If the world economy does not improve, many economists
fear sovereign default
is a real possibility in several European countries and even the United States
No comments:
Post a Comment