The Financial Crisis Of 2008 Essay

1918 Words Feb 9th, 2016 8 Pages
In 2008, an event shocked the world economy. It caused the unemployment rate to raise dramatically, debt to accumulate rapidly, and the economy to shrink, which triggered a recession. This event was known as the financial crisis of 2008. It began with the rapid growth of the housing market. As interest rates were lowered and mortgage standards were lowered, people were encouraged to borrow money and afford homes. This led to a huge flow of money into the market, raising house prices and increasing overall debt. However, at the peak of the market, the direction of the housing market was reversed and began to descend. As a result, many home owners found themselves unable to pay off debt and the government had to bail out financial institutions. What economists have observed here is the phenomena known as economic bubbles. An economic bubble is defined as a surge in prices of an asset in the market to the point where they are beyond its market value and are therefore, highly inflated until the point of instability. In the case of the financial crisis in 2008, the economic bubble that was responsible was the housing bubble. Economic bubbles begin when an emerging market appears. These new markets are created as a result of the introduction of new innovative technology or market that has the potential to grow. In the case of the housing bubble, which began to form in the early 2000s, the introduction of new financial instruments provided the tools to grow the bubble. John B.…

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