Question

Summarize the 2008 economic crisis while highlighting the causes, consequences, and the national as well as international systemic risk. (2 pages – 400 word

Answer 1

The 2008 economic crisis is the worst economic crisis since 1929.It happened despite of several efforts of Fedral bank and other institutions.It led to great recession where housing prices fells significantly.Level of unemployment has been increased to huge level.

Causes

One of the major cause we're that banks lend money to the borrowers who even doesn't have ability to repay it which led to so much availability of buyer for the purchase of property and all.Banks without checking the creditibilty sanctioned the amount of loan to the borrowers.The commodity futures Modernization act was also treated bas one of the main reason of this crisis as it gives power to banks to engage trading in derivatives which they sold to investor.These securities are needed for home loan as collateral for mortgage based security.Thus this derviatives creates demand for more and more mortgages.Thereafter bank relised the no use of such colletral on interbank borrowing as backed security thus rate of interest rises.

Consequences

In a very short span of time government pump or lend excessive money to the banks which led to the complete collapse of the financial system.In long term it leads to decrease in wages, political instability and economic instability.

National as well as international systemic risk of 2008 financial crisis

Systemic risk indicates that in a particular event company would triggered to instability and entire industry will collapse.It was the major contributor to 2008 financial crisis.It is a risk of major failure of financial system when providers of capital,depositors,investors lost trust in users of capital like banks,lenders etc.This risk leads to ultimately global crisis because investors losing trust on financial system and institutions which led to overall impact of the financial cris in the world.