While the 2008–2009 financial crisis originated in the US, it quickly disrupted
ID: 1126908 • Letter: W
Question
While the 2008–2009 financial crisis originated in the US, it quickly disrupted financial markets across the globe, including those in Asia, Europe and South America. As volatility spread, many markets seized up along with their counterparts in the rest of the world. For example, Asian bond funds exhibited increased bid-ask spreads, as markets became increasingly difficult. In the US, unemployment skyrocketed to rate unseen in two decades.
Provide examples of other crises that were experience when the "Great Recession" happened in 2008. Based on what you now know about investment management and financial analyses, what is the significance of your example? How many people did/does it impact? What recommendations would you make to help resolve the issue?
Explanation / Answer
2008 financial crisis has been set as an example for the century for almost all the world which follows the international trade. It was always told that “If US Sneezes then all the other countries catch cold”. This was what we get to see during the 2008 financial crisis which devastated the US economy. It all started with the sub-prime loans that was lend to the US residentials without the collateral obligations. Future the asset price bubble was created and the prices of the assets started rising real high. Due to the interconnection of the countries , other economy started investing money in in stock market of US economy and leading for further increase in the asset prices. The stock market was all time high and the investments kept on increasing.
But when the bubble burst, the whole stock market crashed badly and the prices fell steep down and all the investment went down to veins.
Since many institutional investors invested in the US economy, they lost a lot of money. Many companies went bankrupt in other countries and others had to cut down the business leading to massive unemployment in European Union. Asian faced massive crisis and Asian countries were under major unemployment leading to steep decline in GDP. Recession was seen in many countries and Export decreased. And countries like Malaysia which depend heavily on export was disrupted as the exports decreased to all time low.
It impacted so many countries across the world.
This 2008 financial crisis has set an example to never follow the market blindly. Just don’t go with the crowd because then the asset gets prices abruptly and leads to asset bubble. Such types of financial crisis can only be curbed if investments in anything is done on its fair price.
And loans should only be given to those who have collateral security so that these people do not default on loans and there should be stringent views on the market so that it is under control.
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