What Caused The Global Financial Crisis?

The global financial crisis that hit between the middle of 2007 and 2008 had a large impact on many booming economies. Since the crisis, many nations have had to regulate and change economic policies in order to ensure that the crisis does not occur again. Around the world, many large financial institutions have had to be bought out or have gone bankrupt and stocks on the stock market have dropped significantly. Throughout Europe, the United States and even Asia, governments have had to create economic bail out packages to keep their economies from failing as well. Today there remains a large uncertainty over the future of world economies with many policy makers calling for new government controlled regulation over economies and financial institutions.

While many countries and economies are still recovering from the recent global financial crisis, there are some lessons to be learned from the past crisis. With a new interconnected global market system that connects US markets to European markets and so on, it is becoming increasingly dangerous to prevent another economic meltdown.

The US financial crisis was linked to the fledgling housing market that hit a boom during the Bush era. Many believe that banks became too big to fail and the amount of greed shown by banks caused the housing market to crash. The crash sent stocks falling and many banks that invested in the boom went bust or bought out. The European financial crisis was also linked to the US housing market as many European banks got involved in investment banking, a lucrative sector of banking that has higher yields than retail banking. All over Europe, the financial sector became a leading contributor to the economic growth and once the economic crisis hit in the US, European banks felt the effects.

The Asian financial crisis was also linked to the US and European financial crisis and large economies such as Japan had to fork out billions of dollars to stabilize their economies. The interconnected global financial system has been blamed by many for the financial crisis but there are other reasons as well.

Governments may have to rethink their economic strategies and regulate the financial sector more than before. When the global financial crisis occurred in 2008, many banks and financial institutions had been using greedy means to make more money. This led to the crash and the crisis that followed.