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Explore the Causes of the Current Financial Crisis That Started in 2007 - Essay Example
Finance & Accounting
Pages 9 (2259 words)
Explore the causes of the current financial crisis that started in 2007. Which theoretical view(s) seem to be more relevant in explaining its causes? Introduction The financial crisis which started in 2007 impacted significantly on many countries, most especially the United States, the United Kingdom, Greece, Japan, and other developed nations…
There are various causes for this crisis and this paper shall explore these causes as well as the theoretical views which seem to be relevant in explaining its causes. Body The global financial crisis which started in 2007 is considered one of the most disastrous economic issues the world has ever experienced. In so many ways, it is being likened to the Great Depression seen in 1929, as well as the Russian crisis in 1992 (Banking Law Committee, 2009). Most countries also seem to agree that the main cause of the crisis was the credit boom and the increase in housing prices. As the 2007 was starting to loom over the global market, the US ratio of debt to national income went up by 100% or from 3.75-4.75 to one (Banking Law Committee, 2009). At about the same time, the house prices also increased at a rate of 11% per year. Since 2007, the global market has been hit with various developments which were rooted on the earlier issues on the unfavourable performance of sub-prime mortgages in the US (Banking Law Committee, 2009). The housing boom was followed by a bust which then caused defaults and collapse of mortgages thereby causing financial turmoil. Financial institutions have been met with losses which amounted to billions of dollars and are still continuing to do so (Banking Law Committee, 2009). ...
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