What led to the global financial crisis of 2007-2008? Uncover the causes & effects of the subprime mortgage market, housing bubble, & liquidity crisis on the global economy in our latest article.
When the financial system or the economy as a whole undergoes a rapid and large decline, it is said to be in a financial crisis. Financial assets like stocks, bonds, and real estate often see a sharp and significant decline in value during financial crises. They can also be identified by a decline in credit availability and a loss of faith in financial institutions like banks.
Financial institution mismanagement: Financial institutions that are poorly managed may become bankrupt or fail, which could trigger a financial catastrophe. Many borrowers were unable to make mortgage loan payments when the housing bubble eventually burst and prices started to plummet, which sparked a wave of foreclosures. The value of mortgage-backed securities decreased as a result, and the global financial system experienced a liquidity crisis, which set off the GFC of 2007–2008.
Housing market bubble: In the US, a housing market bubble was brought about by subprime mortgage lending combined with the marketing of these debts as securities. Housing values decreased as the bubble eventually burst, and many borrowers found themselves unable to make mortgage loan payments.
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