Question

Cause of the financial failure of large institutions in 2008（short question）

Answer 1

The major financial failure of large institution in 2008 in America is commonly known as the great recession. The reasons behind this crisis were:

This market instability was caused by many factors, the main among all were the restricted line of credit in the market, which dried up the lines of finance for the people and results in mortgage backed assets by the financial institution. This proved to be a big hardship, as the value of the assets detoriated and weren't bringing in the amount of money needed to pay for the loans. This also resulted in drying up the cash reserve and restricted their credit ability to make new loans by the institutions

There were also many other factors, like the cheap credit availabe in the market for buying house or for making other big investments based on speculation. This availibility of cheap credit in system, resulted in more spending by the people. More and more people wanted to buy the same thing, which increased the demand and resulted in increased inflation. Billions of dollars were leveraged by private equity to purchase companies, which created billions of dollars in wealth in papers only, not creating anything in value. Speculation in oil prices is also seen to be increased with higher rate of unemployment increasing inflation.

These all reasons created inflation in the system at a ver high rate, which distrubed almost every part of the world, as the value for money detoriated in the system . America being the main hub for business in the world affected the whole world to a large extent.