Fighting the Financial Crisis of 2008 Analysis

Fighting the Financial Crisis of 2008
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Fighting the Financial Crisis of 2008
To what causes was the financial crisis of 2008 attributable? Which of these causes do you deem most significant? Why?
A significant cause of the financial crisis of 2008 was the increase in subprime mortgages where borrowers with low credit ratings were offered opportunities to own houses. Since such individuals could not access conventional mortgages, this new product provided the room for more people to join the mortgage sector despite their financial capabilities. Furthermore, the entrance of banks who bought these high-risk loans due to their mortgage security caused an increase in risky lending prices due to its popularity in the country (Bruner, 2020). As a result, the housing market became flooded with more buyers that increased the demand for housing units. However, with changing interest rates, a majority of the borrowers defaulted on the loans affecting the housing market.
Apart from that, the banking crisis brought about by the affected housing market affected a significant portion of the economy. While banks had hoped for their speculative investments in subprime mortgages to gain high yields, their failure led to a halt in lending to each other based on these fears (Bruner, 2020). This affected the liquidity of banks since they could not access short term credit to cover their functions, leading to a majority being on the brink of collapse and required government intervention.
The plummeting of the stock market additionally burst the housing bubble due to the increased number of foreclosures. Consequently, the prices in the stock market took a continuous dive and eventually crashed the stock market with a considerable percentage losing its value by more than half (Bruner, 2020). This meant that a significant portion of families lost their wealth due to the high losses experienced in the stock market.
Therefore, subprime mortgages represent the largest and most significant cause of the financial crisis experienced in 2008. Its popularity caused a domino effect in the financial industry that affected the entire country and even spilled out into a global event. The popularity of such risky behavior showed the vulnerability of the sector and the quest to make profits at all costs by institutions such as banks (Bruner, 2020). Thus, if effort...