The Consequences and Causes of the Financial Crisis (Essay Sample)

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The Causes and Consequences of the Financial Crisis
A financial crisis is a common phenomenon that happens in countries when one or more financial markets or intermediaries stop functioning or just function erratically and inefficiently. Sometimes the crisis may entail only one or a few markets like the savings and loans while in other cases, the whole financial system may disintegrate. Systematic failures, deregulation, and uncontrollable human behavior are the main contributing factors for a financial crisis.
Specifically, the 2008 financial predicament was caused by deregulation in the financial industry. In this particular scenario, the system allowed banks to engage in hedge fund trading with derivatives. After some time, the value of the derivatives crumbled making the banks to stop lending to one another (Tangpornpaiboon and Puttanapong 49). Essentially, the lack of operating funds in these financial institutions resulted to the great recession.
The 2008 financial crisis had major short and long-term consequences on the economy. Due to the banks’ inability to lend to one another, governments were forced to conduct a major bail-out to salvage these institutions. Since