The 2008 Financial Crisis Literature & Language Research Paper (Research Paper Sample)

The 2008 Financial Crisis
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The 2008 Financial Crisis
The 2008-financial-crisis is regarded as one of the worst economic disasters that took place since the 1929 Great Depression, which reshaped the way operations are undertaken in the world of banking. Although the effects of the crisis are still being experienced to-date, many people do not clearly understand the actual causes of the crisis. Research indicates that the crisis occurred as a result of a high increase in the rate of mortgage defaults in the United States subprime mortgage market (Soros, 2008). In the advent of the financial crisis, banks used to create huge sums of money by issuing loans, particularly to investors in the property market. Lending huge sums cash into the property market caused a significant increase in the price of houses as well as personal debts (Blundell-Wignall, Atkinson & Lee, 2009).
As the level of personal debts continued to rise at a higher rate than incomes, many people were unable to pay their loans. This in turn led to a significant fall in the investment expenditure in the property market, decreasing the cost of houses. As a result, banks experienced a liquidity crisis because the houses that they repossessed from loan defaulters had depreciated. The decline in the investment expenditure in the housing sector severely affected business investment as well as consumer expenditure on durable goods. As a result, the country’s GDP declined, leading to problems in the whole economy.