The 2007-2011 Financial Crisis (Essay Sample)

THE 2007-2011 FINANCIAL CRISIS
Course:
Professor’s Name
University
City and State
Date:
The 2007-2011 Financial Crisis
Introduction
From 2007 to 2011, the world economy faced the most devastating financial crisis and economic recession since the Great Depression of 1929. Beginning in mid-2007, the US financial market collapsed, resulting into a country-wide recession that would later spread globally. Within a few months, the investment banking and mortgage industries had collapsed. The largest mortgage lender, commercial banks and many companies also went under. Banks stopped lending to customers, which brought many small and medium level privately-owned businesses down. The crisis resulted in mass layoffs and high unemployment. Share prices throughout the world plunged, and the Dow Jones Industrial Average in the US lost 33.8% in 2008 (Tarr 2012, p.2). By the end of the year (2008), the world was facing a deep economic recession. This paper delves into the main causes of the 2007-2011 global financial crisis, and the consequences it had on the global economy.
Causes of the Crisis
The worldwide economic recession was caused multiple factors, including the structure of the financial market, US government policy, failed government regulation, and the development of a sub-prime mortgage sector in the U.S.
The US government introduced a new lending policy in 1992, to increase home ownership among its citizens. Before the new lending policy, borrowers were required to make a down payment, verification of income and ability to pay the loan. The stringent requirements made mortgages, and therefore home ownership, limited to a few Americans in the prime markets (Taylor & Clarida 2014, p.6). However, the government wanted to reverse this trend and make it possible for many Americans to own a home, to meet the federal Housing and Urban Development Goals. Traditional underwriting