2008 Financial Crisis

2008 Financial Crisis

Introduction

The 2008 financial crisis had impacted the whole world. It had impacted all parts of the world and had caused problems for all the businesses in the world. There were specific sectors that were impacted by this financial crisis and they were the ones who had suffered losses. People have described this financial crisis, the worst after the Great Depression. Although many measures were taken to reduce the impact of financial crisis, none of them worked in an effective manner. Countries had to suffer huge losses and the situation of their economies weakened with time and as the crisis got stronger (www.aim.org). The economic decline all around the world caused a lot of damage to different countries, and there are countries who are suffering from this crisis till now. This paper will discuss the impact of the financial crisis on mortgages, real estate and bailouts.

Discussion

Financial crisis initiated from the US, where the lending institution invested huge capital in subprime market in the form of loan and mortgage, by projecting profitable returns. The fall down of the United State sub-prime credit industry in the middle of the year 2007 stimulated an extensive defect in global credit industries, with consequences experienced throughout a broad variety of banks and capitalists with vulnerability to what turned out to be extremely unclear and high-risk securities debt. Estimates of the total losses resulting from sub-prime mortgage problems vary but $400 billion has been cited. However the borrowers were unable to repay due to various factors which caused the downfall of capital returns resulting in financial crisis.

Financial crisis had caused a lot to the different economies of the world. It was important for them to make sure that they get rid of this bubble so that they get back on the right track and can perform in a manner that will help them in managing their operations in the most efficient manner. The following section will discuss the impact of financial crisis on three different sectors:

Real Estate

Real estate was the sector that was impacted heavily and adversely. It suffered a lot during the financial crisis. A real estate bubble was created and was allowed to inflate inadequately i.e. without proper rules and regulations. It was important for the people to make sure that they work in a manner that is suitable for them in that situation. With this, the economies learnt a lot as they suffered in this area. The supervision of this field was very poor, which is why, this sector had to suffer a lot. There were improper lending terms and housing finance was not properly managed. Complex and difficult to understand financial instruments were introduced which the economies though would help the people. Little did they know, that not everyone is a finance expert and is not possible for them to understand as to how these instruments work in the market (www.unece.org).

Credit risk management was at its worst as it did not regulate the loans extended to the ...