2 pages/≈550 words
Mathematics & Economics
Global Financial Crisis (Essay Sample)
This is an account of the global Financial crisis(Sub prime crisis) that covers Lehman Brother’s bankruptcy as well as the Primary reason for AIG needing a bailout.source..
Global Financial Crisis (subprime crisis)
Global financial crisis was a period of wide spread economic catastrophe, which impeded financial and capital among other markets across the world. The crisis started in 2007 where it began with the breakdown of the United States financial system and extended spontaneously to other nations across the World. The instant cause of the global financial crisis began when the prices of basic commodities such as fuel, food, and fertilizers started to rise. This paper is systematic analysis-covering questions 6 and 9, which deals with issues associated with the 2007 global financial crisis.
Lehman Brother’s bankruptcy
With the short-run widespread of the global financial crisis, where prices of basic commodities began to skyrocket housing prices declined. This is because financial institutions gave loans to commercial property developers at low interest rates. Coupled with the low interest rates many loans were approved to investors and in the long run construction of real estates’ increased leading to a higher supply than the demand for houses. Consequently, prices for houses declined and this dampened the housing market and investors were unable to pay the loans. In connection to this, Lehman Brothers had acquired several mortgage subprime lenders such as BNC Mortgage and Aurora loan Services which specialized on Alt-A lending criteria. Initially, the Lehman Brothers acquisition seemed profitable and the revenues from the sale of real estate made Lehman’s capital market portfolio to grow.
However, as the 2007 financial crisis began to experience cracks, loan defaulters increased and Lehman Brothers experienced financial turmoil that led to bankruptcy as Alt –A criteria did not provide enough documentation thereby making it difficult for the bank to follow up its debtors. In addi...
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