Effect of financial crisis on consumer finance - Essay Example

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Effect of financial crisis on consumer finance

The complexity of financial instruments that were involved in the crisis deepened the effects of subprime mortgage crisis (Ghoshi, 2006). The subprime crisis led to a number of problems in America’s as well as the global financial system. As home owners defaulted on payment of their mortgage costs, financial institutions were drained off liquidity necessary for lending. It also led to reduction of revenues generated by many financial institutions as well as other organizations whose operations were adversely affected by the turbulence on financial markets. This led to decline in economic growth rate, forcing the United States of America and United Kingdom of Britain to record negative gross domestic product growth.
Ben Bernanke, a leading economist and the Chairman of Federal Reserve in US indicated that the Federal Reserve policies are not the main cause of the crisis and its subsequent reduction in access of consumers to credit. He noted that while the US financial policies are partly to blame, other countries policies such as currency management policies in China make the global economy more prone to financial crisis (The Washington Post, 2011).
In a debate moderated by the char of economics department in Harvard University, important facts about the recent global financial crisis were revealed. The subprime crisis significantly reduced the willingness of financial institutions to extend credit to consumers. ...
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Summary

This paper “Effect of financial crisis on consumer finance” presents the diverse consequences of the mortgage crisis to the global consumer markets. The main aim is to prove that recent mortgage subprime crisis significantly reduced the ability of financial institutions to extend consumer credit…
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