Question

What were some of the causes and impacts of the 2008 Financial Crisis?

Answer 1

2008 financial crisis is also known as the subprime mortgage crisis. Why is it called the subprime mortgage crisis and how has it happened? The subprime mortgage is the loan given by the lenders or banks to subprime people who has less credit score that the normal. In simple terms, banks have distributed loans at high-interest rates to people who had fewer credit scores and a high chance of default. So when the time comes to pay back the interest on loans, subprime people defaulted. When the default happened, subprime people had to leave their properties and return it to banks. Due to which, the property prices fall drastically. As the banks could not able to secure the loan money from subprime people and would not able to pay back to their lenders/institutions/retail investors of banks, a few of the big banks like Lehman brothers in the US filed bankruptcy.

Impacts:

A few of the big banks in the US filed for bankruptcy.

The economy of the US got weaker as today's world economies are interlinked with each other due to ease of import/export restrictions, recession hit globally.

Consumers were consuming less and spending less and saving for the upcoming worst days. Due to which there was a loss of demand from US consumers. Therefore countries/suppliers got the hit as well as the Exports in the US, collapsed.

People lost their jobs during this time. Unemployment rates increased.

Govt had to come in rescue and bail out many companies and provided quantitative easing to boost the economy.