The financial crisis of 2008 explained

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Introduction

The financial crisis of 2008 was a disaster that resulted from the recklessness and greed of many financial institutions. This event caused millions of people to lose their jobs, homes, and investments. The crisis also led to some governments having to bail out banks with taxpayer money in order to keep them solvent enough so that they could continue operating and lending money. In this article we’ll learn about how the crisis happened, how it affected different countries around the world, what role central banks played in response to the crisis, as well as what lessons we can learn from all this now that we’re 10 years on from when everything went pear-shaped!

Credit crunch

A credit crunch is the opposite of a credit boom. It occurs when there is a lack of lending, and this can happen for several reasons. One reason could be that confidence in the banking system has fallen so low that lenders are unwilling to lend money to other banks or companies. This happened during the financial crisis of 2008 because many people doubted whether their investments were safe anymore, so they started withdrawing their savings from banks instead of depositing them there (or if they did deposit them, they didn’t leave as much). This led to an increase in demand for cash–but since there wasn’t enough cash available overall due to all these withdrawals happening at once (and some people taking their money out early), banks couldn’t provide enough loans because they didn’t have enough reserves on hand! And then… well… you know what happens next: A financial crisis occurs!

Financial meltdown

The financial crisis of 2008 was the worst economic crisis since the Great Depression. It was caused by a combination of factors including financial deregulation, subprime mortgage crisis, and credit crunch. The financial meltdown led to a global recession that lasted until 2009.

The first signs of trouble appeared on August 9th 2007 when BNP Paribas froze three investment funds because they could not value their holdings due to difficulties in pricing them during illiquid markets. This was followed by Bear Stearns being unable to meet its obligations on two hedge funds’ collateralized debt obligations (CDOs) which had been created out of subprime mortgages sold by Wall Street banks like Merrill Lynch & Co Inc., JPMorgan Chase & Co., Lehman Brothers Holdings Inc., Morgan Stanley Dean Witter & Co., Goldman Sachs Group Inc., UBS AG’s American International Group Inc.’s MBIA Inc.’s Ambac Financial Group Inc.’s AMBAC Capital Markets Corp.’s Pacific Life Insurance Co.’s Prudential Insurance Co Of America’s Lincoln National Corp.’s Genworth Financial Inc..

The causes of the crisis

The financial crisis of 2008 was caused by a number of factors, but it can be traced back to the subprime mortgage crisis.

The subprime mortgage crisis began when banks began giving out loans to people who could not afford them. These loans were called “subprime mortgages,” and they allowed homeowners to get mortgages with interest rates that were high enough for them to pay off their loans over time. When these homeowners began defaulting on their mortgages, banks lost millions in revenue because they had given out so many bad loans that were now worthless or nearly worthless due to defaults. This led lenders such as Lehman Brothers Holdings Inc., Bear Stearns Cos., Merrill Lynch & Co., AIG Financial Products Corp., Washington Mutual Inc., Countrywide Financial Corp., Wachovia Corporation (now Wells Fargo & Co.) and Citigroup Inc..

The effects of the crisis

The financial crisis of 2008 had a massive impact on the world economy. It was felt in every country, industry and person.

The effects were most severe in countries like Iceland, which saw its GDP drop by more than 10% during the first year after the collapse of its banks in October 2008. This was followed by Greece with an 8% decrease in GDP over three years (2008-2010). In Ireland, the financial sector was responsible for almost 30% of national income before 2008 but this dropped to less than 10% after 2011 as many companies went bankrupt due to their exposure to bad loans issued by Irish banks during 2007-2008 period when they lent huge sums without proper evaluation of risk involved in such lending practices

A financial disaster caused by recklessness and greed.

The financial crisis of 2008 was a result of reckless lending and borrowing. Lenders weren’t careful about who they lent to, and borrowers weren’t careful about how much they borrowed.

The real estate market was booming in the early 2000s, so many homeowners felt like they could refinance their mortgages if their finances became tight later on. This led to an increase in home equity loans–loans that are secured by your home’s value but don’t require repayment until the house is sold or refinanced (hence “interest-only” loans). In addition to these types of loans being available at lower interest rates than usual ones, there were also subprime lenders who offered even lower rates because they didn’t check whether applicants could actually afford them; instead they relied solely on credit scores which don’t take into account things like income level or job stability when determining whether someone should receive credit approval

Conclusion

The financial crisis of 2008 was a catastrophic event that shook the world economy to its core. It led to the worst recession in decades and caused millions of people around the globe to lose their jobs. The crisis was caused by reckless lending practices and excessive risk-taking by banks and other financial institutions, which eventually led to widespread defaults on mortgages. These factors combined together created what is known as a “credit crunch,” meaning there wasn’t enough money available for people who needed loans because banks had stopped lending money due to fears over failure

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