A fundamental break down in the existing economical arrangement was fabricated in the financial global crisis that started in summer 2007 and surprised many nations. Commotions in the financial world (banks) had an impact on the real economy in terms of people’s livelihoods. This financial crisis is globally significant to us, as it took place in the heartland of capitalism, the U.S., which is the richest most successful dominant capitalist power.
The key trigger of the financial breakdown was, easy lending of the U.S. housing market, in an era of very low interest rates and reduced regulations. There was an astonishing housing boom across the U.S. and subprime lending, issuing loans to borrowers with low credit rating, became more frequent. ‘During 2004-2006, almost 80% of all subprime mortgages were securitised.’ This is a high risk that was taken by the financial sector with a great chance of borrowers creating a default of their mortgage repayment. Initially, borrowers were attracted by the low interest of the subprime loan, but subsequently suffered from slowly risen interest. At one point the U.S. saving rate dropped to zero as a result of an increase in house prices, which lead to a halt in people’s funds and many …show more content…
The economy can recover in short term, whereas in a moderate reform, economic recovery would be prolonged. In my opinion, there should be a balance between moderate reform and radical overhaul, for instance, government policies can be implemented to create more jobs in the economy. However, the cause of the financial crisis was caused due to weak government regulations and shows that the financial sector relies partly on the government. Therefore, if there was a free market and the government did not inject money to bail banks out, the banking system would not have recovered from the
The key trigger of the financial breakdown was, easy lending of the U.S. housing market, in an era of very low interest rates and reduced regulations. There was an astonishing housing boom across the U.S. and subprime lending, issuing loans to borrowers with low credit rating, became more frequent. ‘During 2004-2006, almost 80% of all subprime mortgages were securitised.’ This is a high risk that was taken by the financial sector with a great chance of borrowers creating a default of their mortgage repayment. Initially, borrowers were attracted by the low interest of the subprime loan, but subsequently suffered from slowly risen interest. At one point the U.S. saving rate dropped to zero as a result of an increase in house prices, which lead to a halt in people’s funds and many …show more content…
The economy can recover in short term, whereas in a moderate reform, economic recovery would be prolonged. In my opinion, there should be a balance between moderate reform and radical overhaul, for instance, government policies can be implemented to create more jobs in the economy. However, the cause of the financial crisis was caused due to weak government regulations and shows that the financial sector relies partly on the government. Therefore, if there was a free market and the government did not inject money to bail banks out, the banking system would not have recovered from the