Why did the global financial system meltdown in 2008 Essay

Why did the spheric financial system meltdown in 2008 - Essay ExampleThe change magnitude in the number of bad loans led to devaluation of company assets and the benchmark indices plunged as a will of the eroding of investor confidence. This effect spread across other economies of the world. The national production levels, imports and exports lowered which gave rise to reduction of frugal consumption demand. The glisten of consumption in the economy again pulled down the productivity levels thereby forming a sad circle which prompted appropriate actions from policymakers for economic rec all overy. Overview and key rational conceptsglobal financial system meltdown and relevant issues of world economy The global financial meltdown that occurred in 2008 had its root in the economic crisis in US. The economic crisis in US started with the crisis in the housing marts of US. The prices of the housing market were steadily increasing during the affection period of the 1980s to 1990s . The investments in the housing market were lucrative as the investors in real ground and housing properties could realize multiple values of their initial investments within a short period of succession. The investment funds were borrowed from the banks and financial institutions. The banks and the financial institutions also observed that their loans could earn them interest repayments in short time and the underlying mortgage properties were also of high value in the market. In the plight of higher evolution in short span of time, the financial institutions lacked due diligence while assessing the credit parameters of the borrowers. The policies of the US organization also influenced such activities in the market as every citizen of US had a fundamental estimable of holding housing property. This phenomenon led to the formation of a housing bubble. Due to lack of tighter credit policies, the income level of the borrowers and their past credit history were not fully checked . This caused the housing bubble to burst when the borrowers at one point of time were not able to repay the loans. The crisis situation occurred when the weight of bad loans increased beyond proportions (Kates, 2011). The financial institutions and the corporate houses which held the housing properties as underlying mortgages incurred heavy losses as a result of the bad investments. The share prices of the companies including big names worry the Lehmann Brothers fell and the shareholders wealth was eroded in warm time. This led to a huge crisis in the economy of US that created the financial recession in 2008. The economic crisis in US is also referred to as the sub kick crisis. The losses that occurred in the housing market is referred to as subprime because this market had a relatively lesser adherence to credit parameters for lending and included borrowers who could not avail loans from the prime house lending market. The economic crisis slowly and gradually spread to other e conomies as well and the global financial system was hit by the economic crisis (Allen, 1999). This was the age of economic reforms by developing countries like China, India which led to its integration with the world trade. The international economy was heavily dependent on the exports and imports of the countries all over the world like US, UK, Canada, countries of the European Union, Middle East, China, India, etc. The economic crisis in US led to the fall of consumption demand and productivity in the economy. As a result of this, the exports and imports of the country hampered which in acetify affected the imports and exports of other countries all over the globe. Thus the effect of economic crisis melted down to the economies as well