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Global Financial Crisis

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GLOBAL FINANCIAL CRISIS

The Global Financial Crisis is considered to be the worst financial crisis to hit the global economy since the Great Depression. Around the world, stock markets fell, financial institutes collapsed or were bought out, banks stopped business with each other and governments had to bail out their banks and financial institutions.
This in turn caused lots of unemployment and collapse of the real estate market, contributing to failure of businesses and industries, decline in consumer wealth and a decline in economic activity leading to the Global Recession.

The Financial Crisis may have showed some traces in 2007 but it really hit on 15th September 2008 when the United States Government allowed Lehman Brothers to go bankrupt, resulting in all banks deemed to be risky.

The immediate cause of the crisis was the bursting of the United States housing bubble which had peaked in 2006.By September 2008, housing prices in the United States began to decline after hitting their peak in 2006.Easy credit and a belief that house prices would continue to appreciate had encouraged many subprime borrowers to obtain adjustable rate mortgages. These mortgages enticed borrowers with a below market interest rate for some time, followed by market interest rates for the remainder of the mortgage’s term. Borrowers who could not make higher payments once the initial grace period ended tried to refinance their mortgages. Refinancing became more difficult, once housing prices began to decline in USA.Borrowers began to default as they were unable to to escape higher monthly payments.
In addition to easy credit conditions, there was an increase in the amount of subprime lending during the years before the crisis. Major US investment banks and other enterprises like Fannie Mae played an important role in the expansion of higher risk lending. Subprime

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