The global economic meltdown

AFP Just six weeks intothe bull run in global stock markets has abruptly crashed to a halt. After a banner January, in which stock prices seemed only to go up, investors suddenly took fright.

The global economic meltdown

The Financial Crisis of Written By: Presented as archival content. Unlike most articles on Britannica. Rather, they are presented on the site as archival content, intended for historical reference only. In the world economy faced its most dangerous Crisis since the Great Depression of the s.

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The contagion, which began in when sky-high home prices in the United States finally turned decisively downward, spread quickly, first to the entire U. The casualties in the United States included a the entire investment banking industry, b the biggest insurance company, c the two enterprises chartered by the government to facilitate mortgage lending, d the largest mortgage lender, e the largest savings and loan, and f two of the largest commercial banks.

The carnage was not limited to the financial sector, however, as companies that normally rely on credit suffered heavily.

The global economic meltdown

The American auto industry, which pleaded for a federal bailout, found itself at the edge of an abyss. Still more ominously, banks, trusting no one to pay them back, simply stopped making the loans that most businesses need to regulate their cash flows and without which they cannot do business.

In December the National Bureau of Economic Research, the private group recognized as the official arbiter of such things, determined that a recession had begun in the United States in Decemberwhich made this already the third longest recession in the U. The global economic meltdown the end of the year, Germany, Japan, and China were locked in recession, as were many smaller countries.

Many in Europe paid the price for having dabbled in American real estate securities. Japan and China largely avoided that pitfall, but their export-oriented manufacturers suffered as recessions in their major markets—the U.

Less-developed countries likewise lost markets abroad, and their foreign investment, on which they had depended for growth capital, withered. With none of the biggest economies prospering, there was no obvious engine to pull the world out of its recession, and both government and private economists predicted a rough recovery.

University students and graduates seek employment at a job fair in Shanghai on November 22, How did a crisis in the American housing market threaten to drag down the entire global economy? It began with mortgage dealers who issued mortgages with terms unfavourable to borrowers, who were often families that did not qualify for ordinary home loans.

Some included prepayment penalties that made it prohibitively expensive to refinance. These features were easy to miss for first-time home buyers, many of them unsophisticated in such matters, who were beguiled by the prospect that, no matter what their income or their ability to make a down payment, they could own a home.

Signs advertising residential property for sale line a street in south London in April Frequently they sold these loans to a bank or to Fannie Mae or Freddie Mac, two government-chartered institutions created to buy up mortgages and provide mortgage lenders with more money to lend.

Then the security would be sliced into perhaps 1, smaller pieces that would be sold to investors, often misidentified as low-risk investments.

The global financial crisis, brewing for a while, really started to show its effects in the middle of and into Around the world stock markets have fallen, large financial institutions have collapsed or been bought out, and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems. The Great Recession was a period of general economic decline observed in world markets during the late s and early s. The scale and timing of the recession varied from country to country. The International Monetary Fund concluded that the overall impact was the most severe since the Great Depression in the s. The Great Recession stemmed from collapse of the United States real. Financial blog on news and global macroeconomic themes regarding the world economy. The blog7quot;s primary focus pertains to inflation, deflation, and hyperinflation, especially currencies, gold, silver, crude, oil, energy and precious metals. Other macro discussion topics include interest rates, China, commodities, the US dollar, Euro, Yuan, Yen, stagflation, emerging markets, politics.

What began as insurance, however, turned quickly into speculation as financial institutions bought or sold credit default swaps on assets that they did not own.

As long as housing prices kept rising, everyone profited. Mortgage holders with inadequate sources of regular income could borrow against their rising home equity.

The agencies that rank securities according to their safety which are paid by the issuers of those securities, not by the buyers generally rated mortgage-backed securities relatively safe—they were not. When the housing bubble burst, more and more mortgage holders defaulted on their loans.

By the mild slump in housing prices that had begun in had become a free fall in some places. What ensued was a crisis in confidence: The first major institution to go under was Countrywide Financial Corp. Bank of America agreed in January to terms for completing its purchase of the California-based Countrywide.

The next victim, in March, was the Wall Street investment house Bear Stearns, which had a thick portfolio of mortgage-based securities. Bush—could find it necessary to insert itself into private enterprise, the rescue of Fannie Mae and Freddie Mac in September laid that uncertainty to rest.

With the rush of defaults of subprime mortgages, Fannie and Freddie suffered the same losses as other mortgage companies, only worse. With Bear Stearns disposed of, the markets bid down share prices of Lehman Brothers and Merrill Lynch, two other investment banks with exposure to mortgage-backed securities.

Neither could withstand the heat. Lehman Brothers, however, could not find a buyer, and the government refused a Bear Stearns-style subsidy. In return, the U. Five days later saw the end for the big independent investment banks. Rather than proclaim their innocence all the way to bankruptcy court, the two investment banks chose to transform themselves into ordinary bank holding companies.J ust six weeks into , the bull run in global stock markets has abruptly crashed to a halt.

After a banner January, in which stock prices seemed only to go up, investors suddenly took fright. Financial blog on news and global macroeconomic themes regarding the world economy.

The blog7quot;s primary focus pertains to inflation, deflation, and hyperinflation, especially currencies, gold, silver, crude, oil, energy and precious metals. Other macro discussion topics include interest rates, China, commodities, the US dollar, Euro, Yuan, Yen, stagflation, emerging markets, politics.

Dec 12,  · The Financial Crisis of In the world economy faced its most dangerous Crisis since the Great Depression of the s. The contagion, which began in when sky-high home prices in the United States finally turned decisively downward, spread quickly, first to the entire U.S.

Inside the Meltdown | Watch S27 E8 | FRONTLINE | PBS | Official Site

financial sector and then to financial. The Financial Crisis of In the world economy faced its most dangerous Crisis since the Great Depression of the s. The contagion, which began in when sky-high home prices in the United States finally turned decisively downward, spread quickly, first to .

Jul 10,  · In a conspicuous sign of unease among global investors, the value of Turkey’s currency, the lira, has plunged by roughly one-fifth this year, raising prices for households and businesses alike.

Jul 10,  · In a conspicuous sign of unease among global investors, the value of Turkey’s currency, the lira, has plunged by roughly one-fifth this year, raising prices for households and businesses alike.

Great Recession - Wikipedia