Financial Crisis in the 2007-2008 Years

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A financial crisis is one of the issues that have generated a heated debate among scholars and financial analysts for years. The 2007/08 financial crisis is one of the worst that has ever happened in the global economy. Many scholars and analysts employ various models and theories in explaining the causes and the effects of the financial meltdown.

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In many parts of the world, the crisis had tremendous effects, including the closure of financial institutions, the shutting down of huge companies and organizations, the collapse of industries and certain sectors, as well as the loss of jobs. It forced various governments to bail out their banks to ensure continuity and stability of the economy. Several stock markets, including the major ones such as the S&P 500, Dow Jones, and Nikkei suffered a lot.

The most affected industry in the economy of the United States was the housing market, which resulted in evictions, foreclosures and stretched joblessness. The problem was even great in Europe since it led to the 2008/2012 global depression and contributed to the European Sovereign-debt crisis. In 2007, the financial crisis reached its peak when it was declared that the phase had reached a liquidity crisis stage (Smith 17).

The values of securities related to the real estate pricing fell in 2006 in the US when the housing bubble busted. These are some of the financial issues that have been of interest to me for several years. I sought to capture the real causes of the financial crisis since it is established through research that it is not usually caused by a single factor. In this regard, I interviewed one of the professionals from one of the best-performing companies in the economy.

I contacted one of the leaders of Cabot, Cobot, and Forbes organization, which is a real estate firm in the country. The director, Mr. Charles H. Spaulding, noted that the firm is one of the oldest in the real estate market, having developed through his leadership. The firm was also affected in 2007 when the real estate industry nearly collapsed.

Many firms in the industry collapsed, but the firm was lucky to survive mainly because of its strong strategies. The director was quick to mention that the financial crisis is one of the most dangerous to the economy since it does not spare any firm or individual. It does not look at the size of the organization, financial strength, or leadership.

I found the director through LinkedIn, which is one of the social sites utilized by directors and other executives in discussing issues (Rajan 89). As earlier noted, I chose the financial crisis because it affects all sectors of the economy. I was sure that the director would give me his personal experiences as regards to the financial crisis. I wanted to know why the financial crisis happens yet the public and the private sector is always alert.

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In this case, I was interested in knowing some of the deep-seated causes of the financial crisis in the American economy. The interview was very successful because the director gave some of the problems that facilitated financial meltdown in the American economy. It should be noted that any economy could face the crisis in case care is not taken to mitigate some of the problems that the director stated.

He started by noting that the American government started formulating policies from 1990 to 2009, which were harmful to the financial sector. For instance, changes to capital adequacy needs in the global banking agreements demanded the approximation of the risk features of the bank portfolios. However, global banking treaties allowed permitted banks to create their models.

This rule was very dangerous because each bank was to develop its model, which was not even tested. Many banks understood risks in simple term because they perceived that risks are Tier 1 capital. This simple understanding could have caused several problems to the banking institutions, which degenerated to the financial crisis.

In the American economy, banks were given too much freedom because they were permitted to accrue assets amounting to between 30 and 100 times their equities. This was very different in other places, such as Canada whereby banks could only accumulate assets 20 times less their equity. Politics played a major role in the 2007/08 financial crisis because the government came up with policies in 2000 that would allow the poor to acquire loans from the financial institutions.

Banks had no other option but to lend funds to the poor (Hellwig 26). This was done by lending money to the so-called subprime market, which was the immediate cause of the financial crisis. The government influenced the GSE to back the bank’s initiatives of lending money to the poor. The GSE resorted to buying subprime mortgages from banks. This resulted in various problems, the worst being the financial crisis.

Through the interview, I noted that the government has a tremendous effect on the economy of the country. This means that its economic policies have direct impacts on the performance of the economy. From the interview, I was convinced that the US government was majorly to blame for what happened to the economy. In this regard, it was justifiable for the government to bail out banks.

Works Cited

Hellwig, Martin. Capital Regulation after the Crisis: Business as Usual. Bonn: Max Planck Institute for Research on Collective Goods, 2010. Print.

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Rajan, Raghuram. Fault Lines: How Hidden Fractures Still Threaten the World Economy. New York: Princeton, 2010. Print.

Smith, Yves. Econned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism. New York: Palgrave Macmillan, 2010. Print.

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BusinessEssay. "Financial Crisis in the 2007-2008 Years." January 6, 2021.