The impact of financial crisis on five USA companies - Essay Example

However, subprime mortgage loans given to individuals with less than perfect loan carrying capacity and declining home prices coupled with structural changes in the United States economy that had built up a huge deficit in trading with the rest of the world caused the bubble to burst. This left many with write-offs worth many billions and assets whose real value had declined substantially. Because the mortgages converted into mortgage-based securities sold to many around the world, the financial crisis turned global.

Businesses now faced a changed business environment, uncertainty and problems raising funds. This dissertation examines the impact of the financial crisis of 2007 – 2009 on selected businesses headquartered in the United States of America. According to the International Monetary Fund (IMF), the years 2008 – 2009 presented the world with the deepest global recession since the great depression and the most important of all reasons for this economic downturn was a global financial crisis (Berlatsky, 2010, Pp.

16 – 20). In an interlinked world, economic problems in one country were bound to have an impact on the others to threaten global financial stability. According to the previously mentioned author, prominent economists suggest that the United States economy that had been the envy of the world for many years now carried mountains of debt that endangered prosperity and the global economy. A desire on the part of Americans to own their homes had resulted in a massive increase in home prices in the United States of America and irresponsible lending at low rates of interest to many who were bad credit risks created a bubble involving rapidly increasing home prices that were to later collapse.

In a market with collapsed property values, banks could no longer readily recover the amounts loaned to bad credit risks. Because many banks were involved in arrangements involving credit default swaps, the financial strains were to result in the collapse of