The financial crisis that occurred in 2007-2008 is frequently defined as one of the major financial events at the beginning of the 2000s. Wallison even compares it to the Great Depression of the 1930s and introduces it as the world’s worst financial crisis that could happen again (3). Some effects of the crisis are still felt because people cannot control the presence or the absence of money in financial markets. Some people and organizations have numerous doubts and think that the same or even worse outcomes could be observed soon. To comprehend its essence and try to predict its repetition again, it is necessary to analyze its causes and investigate its consistence.
One of the main reasons for why the financial crisis happened in 2007-2008 was the fact that banks could create much money in a short period of time. The outcome of such possibility was unpredictable and uncontrolled changes in housing prices and the development of speculations on financial markets. People got access to huge amounts of money, but did not know how to spend them in a proper way.
The first falling of housing prices was observed in 2006. Rating agencies gained huge powers. The beginning was impressive, and realtors were happy to admit the fact that people could afford themselves new houses. People believed that the situation could be changed and stabilized soon. However, no improvements were observed. People continued taking loans and credits and enjoyed cheap and easy money in the housing market without even thinking where all that money came from (Eecke 93).
Each time a bank offered a loan, new money was created, and the debt in the economy was doubled. In several months, it was clear that the economic debts were unpayable. Many banks turned out to be close to become bankrupts. The Federal Reserve Bank did not hurry up to blame banks for the mortgage crisis numerous countries were in but to focus on the work of Congress, the representatives of which made people believe in the possibility of having cheap and available houses without proper financial support and background. Personal greed, numerous frauds, failed regulations, and low interest rates created good opportunities for banks and other loan organizations to convince people and take risks.
The collapse of the global financial system was evident (Wallison 134). Still, regardless of the fact that the scope or the consistence of the crisis was global, not all countries underwent such terrible change and financial concerns as the citizens of the United States. In Canada, the closest neighbor of the US, banks were able to stay stable and avoid the negative outcomes. At the same time, some European and Asian countries could not avoid the effects of the crisis and had to re-evaluate their economic and political relations at the international level.
In general, all causes of the financial crisis could be concluded with the fact that people could neither predict the possible outcomes of price changes nor control money banks produced at the moment. The appearance of rating agencies, the lack of transparency in mortgage finance, and global imbalances promoted deficits, conflicts, and doubts in a short period of time. People simply were not ready to cope with the possibilities they got, and banks were not ready to help people comprehend all possible threats of the system.
Works Cited
Eecke, Wilfried. Ethical Reflections on the Financial Crisis 2007/2008: Making Use of Smith, Musgrave and Rajan. Springer Science & Business Media, 2013.
Wallison, Peter. Hidden in Plain Sight: What Really Caused the World’s Worst Financial Crisis and Why It Could Happen Again. Encounter Books, 2015.