The Financial Crisis, How We Arrived Here

Running Head : THE FINANCIAL CRISIS

The Financial Crisis , How We Arrived here

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The Financial Crisis , How We Arrived here

Introduction

This discusses the major reasons behind the recent financial disaster which has affected every country economically one way or another . The crisis did not just appear out of the blue but it had been accumulating since the ending years of the last century . There are many reasons for this turmoil but the triggering mechanism was the substantial decline in real estate

prices which began in late 2007 . As the US housing prices declined it became more difficult to refinance loans while foreclosures and default on mortgages became common . Many of the large financial firms and banks had invested heavily in mortgage backed securities which are more commonly known as subprime mortgages because of high risk and low profitability . When the foreclosures and defaults started they also affected the securities which depended on them causing the firms to face huge losses . The largest five banks of America either went bankrupt or had to be provided with liquidity in the form of Government support or acquisitions . The long term consequences of investing in these instruments were not seen as the banks and brokers were gaining profits in the short term . This crisis not only affected America but the entire world economy is under pressure and the financial and credit markets around the world face a remarkable liquidity crunch The main causes of the financial crisis...