The global financial crisis affected brought down the financial system of the world. It is worth noting that the financial crisis affected various countries in the world. There are various components that led to 2008 financial crisis. The factors offer in-depth information of what happened in the financial systems. The banks played a critical role during the financial crisis. The banks created too much money in the economy and made loans (Claessens 63). The level of debt in the economy doubled, which exerted much pressure in the economy. Also, housing bubble led to financial crisis. The money policies were too easy, and the federal government allowed the prices of houses to increase to unsustainable levels. The increase in house prices profited many people in the economy. Many agencies began to rank securities regarding safety. The bursting of housing bubble rendered mortgage holders unable to pay their loans. Global imbalances triggered the financial crisis. Unstainable economic patterns in the countries influence the financial flows in the world (Bernanke 58). Some countries were running at a deficit, while other operated in a large surplus. The factors that cause the crisis is focused on moral hazard, excessive borrowing, weak regulations, as well as, flawed compensation structures. In the general perspective, 2008 financial crisis was caused by several factors, bit there are tremendous changes that have taken place since the crisis came to an end.
The crisis was a major threat to the banking system and the entire economy. There are several components that have changed since the crisis. The banking system in the United States was saved from collapsing by the taxpayer’s money. There are several regulatory procedures that have been implemented to control the banking system (Claessens 65). The Financial Services Act has been introduced to supervise banks and focus on the interest of the consumers. Also, those people who are saving the banks have been protected by the Financial Services Compensation Scheme. The regulation has been put in place to prevent a future crisis. The regulation laws intend to enhance oversight agencies (Savona, John and Chiara 38). Executive of the bank undergoes the vetting process. Debt in the financial sector has incredibly reduced. On the other hand, some of the things have not changed much. The larger banks in the financial sectors still hold low capital. Also, the biggest banks continue to be bigger than ever. The rising inequality is a threat to development and undermines human rights and democracy. The banking sector is still involved in shady practices.
There was a tremendous experience that cities and people went through during the crisis. One of the crucial experience is the decline in the standard of living. This is because of destroyed jobs and displacement of homeowners. The crisis rendered many people jobless since most of the institutions were struggling to survive through the crisis. During the crisis, the unemployment rate in the United States increased by 6.3%. Also, people experienced a decline in income and consumption. Decrease in spending decreased the output and weakened the labor markets (Adebambo et al. 653).
The financial crisis was caused by the failure of regulatory systems. The government implemented several strategies to prevent future crisis and enhance economic growth. The repeal of Glass-Steagall is believed to have caused the crisis. The government focused on making reference to the principles of Glass-Steagall. Deregulation magnified the effects of the financial crisis (Friedman 257). After the crisis, the government took measures to improve the labor sector. This includes the adjustment of minimum wage and review provisions that guide minimum wage.
In the general perspective, the 2008 financial crisis affected various countries in the world. The banking sector was heavily affected by the crisis. There are several factors that caused the crisis. This includes the over borrowing, subprime crisis, and housing bubble. Despite the crisis, there are several issues that have changed. The banking sector has become more conscious, especially in the lending policies. More policies and strategies have been implemented to prevent a future crisis.
Work cited
Adebambo, Biljana, Paul Brockman, and Xuemin (Sterling) Yan. "Anticipating The 2007–2008 Financial Crisis: Who Knew What And When Did They Know It?." Journal Of Financial & Quantitative Analysis 50.4 (2015): 647-669. Business Source Premier. Web. 18 Apr. 2016
Bernanke, Ben. The Federal Reserve and the Financial Crisis. Princeton: Princeton University Press, 2013. Internet resource.
Claessens, Stijn. Financial Crises: Causes, Consequences, and Policy Responses. , 2014. Print.
Friedman, Jeff. What Caused the Financial Crisis. Philadelphia: University of Pennsylvania Press, 2011. Internet resource.
Savona, Paolo, John J. Kirton, and Chiara Oldani. Global Financial Crisis: Global Impact and Solutions. Farnham, Surrey: Ashgate, 2011. Print.
