The financial crisis was primarily caused by deregulation in the financial industry. That permitted banks to engage in hedge fund trading with derivatives. Banks then demanded more mortgages to support the profitable sale of these derivatives. Housing prices started falling in 2007 as supply outpaced demand.
How long does a recession last?
It is typically considered to be a period of three years that are marked by severe economic contraction, including a GDP decline of at least 10 percent. High unemployment and low consumer confidence are other indications—elements we currently have in spades.
What was the cause of the global financial crisis?
Although the global financial crisis is still ongoing, there has been a tremendous effort to research and analyze its causes. Though the crisis started with the subprime mortgage sector in the US, its genesis can be traced to excessively loose monetary policy in the US during 2002-04.
What are the characteristics of the global economic crisis?
The global economic crisis is also characterized by falling stock market, housing market, collapse and bailout of large financial institutions and the economic/ financial suffering of the ordinary people who would experience soaring prices, job losses and the accompanying emotional trauma.
How did deregulation lead to the financial crisis?
The financial crisis was primarily caused by deregulation in the financial industry. That permitted banks to engage in hedge fund trading with derivatives. Banks then demanded more mortgages to support the profitable sale of these derivatives.
How did the housing market cause the global economic crisis?
The first aspect is the building up of toxic derivatives on top of the subprime housing market which meant that once the housing market went bust, the financial securitization and the derivatives that were based on the housing market blew up leading to banks being unable to lend to each other and suffering losses.
