ECONOMICS

Financial Crisis of 2007

Financial Crisis of 2007

Introduction

The financial crisis that erupted in 2007 and has lasted has seriously clouded employment prospects and growth. France would probably not escape the recession in 2009. Already, the situation has deteriorated to the employment front. Between December 2007 and 2008, the number registered with the ANPE has increased by 217,000 persons. Production industry also recorded a sharp drop the last digit of November doing shows a decline of over 9% annually. If at the outset, one could anticipate real impact of the financial crisis, the magnitude and the precise mechanisms of transmission remain to be seen. The objective of this paper is to propose a first evaluation of the effects of the financial crisis on France also taking the U.S. as a comparison. The U.S. benchmark is even more relevant than it is across the Atlantic that the financial crisis broke out and it really makes sense: crisis estate, banking crisis and stock market crisis. Many attempts to assess the cost of banking crises A and have financial been conducted. This is systematically ex-post evaluations. In fact, after the crisis is still highly uncertain, we cannot pretend to measure all the effects. Simply, our ambition is to go beyond the analysis of taking in the reference observed degradation of GDP in some major crises 2 to infer the risks and the depth of the recession. We therefore exclude the use of pure methods statistics that assess the cost of the crisis from the differences in levels or rate.

A credit crisis which was triggered in the U.S. subprime mortgages, has become a global financial crisis to evolve first into a market crisis, and then to a liquidity crisis. Subprime mortgages have been the raw material of a banking business model fueled more by committees that generated by the exhaustive analysis of risks: commission from granting subprime mortgages and asset allocation increasingly complex financial with these mortgages as underlying. The existence of very low interest rates over a long period of time, and calculations of the rating agencies, fueled the demand for these financial assets now called "toxic" for several markets and financial intermediaries - banks and non-bank, which made an initial credit risk market risk. The possibility of removing those assets from bank balance sheets to reduce the capital requirements camouflaged the fate of these financial assets when their prices went down, nobody knew where the losses causing a crisis of confidence among banks that collapsed interbank market (Stiglitz, 2010, pp. 86).

Since the Great Depression home prices had never fallen for the whole of the U.S. and it was hoped that this never happens, so the mortgage market looked with little risk, if someone could refinance for as will value the house, or could always sell for a higher value than the loan. The result was a relaxation of credit standards in the U.S. Well, with this hypothesis is developed a business model which in turn fed the dogma, and that can be characterized by: ...