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The Financial Crisis

In: Business and Management

Submitted By cdong
Words 1679
Pages 7
In 2007, the US financial system began to collapse. The trust link between the different financial institutions, such as Investment Banks or Insurance Companies, broke – crashing all the financial system. The collapse of all the US banking system had consequences everywhere in the world. No one, from the strongest European countries to the poorest places in the world, was spared.

To understand the whole current situation, we have to look back in the 80s and 90s when the deregulation started. Deregulation means lowering the laws and restrictions voted by the government, which lowers the government control over how business is done, between who and who.
It started with the deregulation of how the loans are used. Before the deregulation, the financials institutions could not use the money of the individuals. But they came public, so they had access to a lot of money provided by the stockholders. This situation lead to two crises in the eighties, and in the nineties.
Between 2001 and 2007 happened a period, called “bubble”, of high deregulation and speculation. It lead to the financial crisis we are now still facing.
The main point of this essay is to understand how the system have collapsed, who and what was involved. It will also try to explain why the US crisis has spread to the other financial markets all around the world.

1/ The play of the interest rate during the US crisis

In the early 2000s, the interest rate was kept down by the Federal Reserve (FED) to boost the economy. As the interest rate was low, people started to borrow money easily. With this money, they started to by houses, and this is how the housing bubble began. The housing market in the USA doubled in a few years. Investment banks understood that people were purchasing houses, so they started to purchase the mortgages (of these individuals) from the lenders. After all the mortgages were

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