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Friday, 21 August 2015

Remembering the 2008 Global Financial Crisis

Some financial analysts say that it was just a big failure in regards to mismanagement that was the cause of the 2008 financial crisis, yet, others state that it was more than just mismanagement. Regardless of what the experts say, the 2008 financial crisis could be considered as the worst cause of recession that made the overall economy of the United States plummet since the Great Depression of the 1930's. But what really caused it? A comprehensive view of the events that followed revealed that the it was caused by the bursting of the housing bubble. It can be recalled that during the early years between 2004 and 2006, that the U.S. Experienced a substantial growth in it's real estate industry that enticed potential home owners and borrowers alike to take out financial loans in relation to financing and mortgages. Complacency amongst financial institutions and loan providers were backed up with the expectation that there will a long term investment growth in regards to the loans that were financed and that these same loans were sold off to bigger investment institutions that sought to capitalize on the continuing demand for such financial loans.

Another aspect of it involved the lack of financial credit scrutiny in which most of the financial companies that approved these loans were not very particular in regards to fully instigating a detailed background check on all of the loans that they approved. There was a general majority of these financial institutions that often disregarded bad credit records of the applicants involved that they quickly set aside the consequences of of the possibilities their loans to be called in. The bad perception of the fact that they were really expecting the continued escalation of the housing industry pricing was one of the least causes, added to the lack of substantial capital holdings of banks and insurance companies to secure their financial commitments which resulted in selling off their security mortgages to bigger investment companies at that time.

Given these conditions, the financial housing industry was slowly experiencing a steadily rising default rate on their mortgages and loans, as housing prices began to increase, which eventually affected the adjustable rate mortgages (ARM) causing borrowers to default on their loans. Unlike other countries that go through such financial turmoil, the United States capitalized on other countries financial woes as it buys other countries debt-financed mortgages and securities. The Russian and Asian financial crisis of 1997 and 1998, gave the United States a large influx of foreign funds that became the major capitalizing source of their housing industry boom. Another cause was the undeniable fault of the financial institutions that gave out and approved of such loans, taking into lightly consideration most loan applications that were highly irregular as to the capacity of the individual to fully comply with completely paying off their obligations.

Sometimes, it all points back to making accounting mistakes and the question of how to become an accountant. Over complacency of favorable financial conditions may well be the reason for this financial crisis and disregarding protocols such as strict loan and mortgages applications may well be the financial institutions fault. Loan financiers were so optimistic in regards that whether or not the loans were to be paid or called in to default, they thought that they can securely resell it to other financial investors and even gain a profit from it. Unfortunately, things never turned to their favor as the companies and institutions that bought and repackaged the loans, called it in, forcing many individuals and companies to default on their loans.

It became a spiraling effect, plugging the economy of the United States that affected the whole world as international markets who's dependency on the dollar found a decrease in the overall productivity of the U.S. Economy that led thousands of people jobless and many businesses to fold shop. As of date, the United States Congress has enacted certain guidelines to ensure that the devastating effect of the 2008 financial crisis should not be repeated again, as imposing stricter regulations in regards to loans and mortgages applications. Credit and financing protocols had been instigated calling for a more stricter compliance that will protect both borrowers and financial loan providers in the event of something like this should happen again.

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