The 2007-2008 Financial CrisisPage
The Causes and Impacts of the 2007-2008 Financial Crisis
Professor Karl Mitchell
Date: March 21st, 2022
Thesis Statement: The 2007-2008 financial crisis is considered one of the most dangerous crisis since the Great Depression.
The burst of the housing sector in US that peaked in 2005 and 2006.
Increase in interest rates puts homeowners out of reach
Leads to default and foreclosure
Decrease in general economic activity
Less disposable income, job loss, fewer jobs
Demand for houses decrease
Decrease in demands
Supply & demand comes into equilibrium
Rapid price appreciation slows down.
The extensive lending standards in the housing market
The burst created competition amongst mortgage lenders
Rush to approve home loans
Borrowers with less than deal credit
Granted to people that previously couldn’t own homes
Contributed to run-up in housing prices
Mortgage standard went down, and risky loans increased
Regulation and policy errors
Borrowers were given loans they can’t pay back
Mortgage losses were spreading
The crisis impacted financial markets all over the world.
Decline in global economy
International trade fell
Industrial production fell faster than during the Great Depression
Consumer and business confidence shattered
The Federal Reserve kept the US economy from total collapse
Fed reduced interest rates to zero
Launched quantitative easing program
What are the aftermaths?