How did the financial crisis start?
The global recession has been going on for quite some time at this point. Now that it has had some time to sink in, many people want to know what caused it in the first place. The easy answer is that it started when the mortgage bubble burst. This is really over-simplifying the problem, though. There is a lot more that went into the problem, including over ten years of ignored warnings from financial experts and scholars. Even though we had been hearing that this might happen, when the bubble burst it was still an event that came as a surprise. This is probably because it became a much bigger problem than anyone really anticipated.
Knowing the events that led up to the global financial crisis is important. This is because we, as humans, hopefully can learn from mistakes, so as not to repeat them in the future. Even if only on an individual basis, if these facts help anyone in the future, then this article has been a success.
The beginning of the end came in 2008, in September. The takeover by the federal government of Fannie Mae and Freddie Mac was announced on the 7th of that month. Another huge financial institution, Lehman Brothers, had to file for bankruptcy on the 14th, after being turned down for support from the Federal Reserve. The Bank of America was also bought by Merrill Lynch on the same day. Two days later AIG got aid from the Federal Reserve to get them out of financial trouble, to the tune of $85 billion dollars.
Because of these dominoes that started to fall in September, the recession hit hard, and stock markets all over the world collapse and became devalued. More and more banks started to fail in the coming days, and the current President, George bush, was forced to bail out the industry with $700 billion dollars.
Almost all the major banks in America received some kind of bail out during that fateful month. The stock markets around the world did recover somewhat, but the damage had been done. The world has been mired in a recession ever since. Foreclosures have gone through the roof, and the resulting unemployment and inflation have hit the lower and middle class people the hardest.
The results of the financial crisis have affected everyone in the world. Inflation is a real problem, because the federal government printed a bunch of new money to bail out all the banks. This had the effect of creating a devalued American dollar, which creates rampant inflation. the people who suffer most are the taxpayers of the United States. It has become a perpetual cycle that just keeps making the divide between the classes larger and larger. Until we truly realize the causes of the financial crisis, we will not know exactly how to do anything about it. Hopefully we, as a people, can learn from these grave mistakes in order to have a better and more financially stable future for all.