The 2007-2009 financial crisis, also known as Housing Crisis or The Great Recession, was the hardest economic slump in the United States (US) after the Great Depression, which happened in the 1930s. During that time, the net worth of the non-profit organizations and the Us as a nation collapsed from a rough estimate of $69 trillion to around $55 million (Adachi-Sato & Vithessonthi, 2021). The significant fall happened from December 2007 to June 2009. Peer review articles are analyzed to determine the activities that led to the Great Financial Crisis (GFC).
Excessive leveraging is one of the major causes of the great recession. Leveraging happens when a business borrows much money and fails to pay it back, whether with the interests or their failure to sustain the business operations due to the debits (Cumming et al., 2021). In 2007, leveraging was high in households and banks, collapsing assets and leverage prices. Collapsing the leverage prices meant the businesses did not have profits, leading to the financial crisis. Mortgage securitization, which refers to loans borrowed to maintain a home or for acquiring land, also led to the financial crisis. House mortgaging played a major role in the crisis because people borrowed money from banks and did not return at the expected time, which affected the banks severely (Hossain & Kryzanowski, 2019). The mortgage loans pushed the banks to give low-interest loans to those who wanted to borrow money, but things grew from bad to worse instead of mending the finances.
The corporate regime contributed to the great recession in several ways. For example, the weak system of governance was reluctant in that it focused on achieving its goals and objectives, leading to the decline of the normal functions of the banks (Cumming et al., 2021). The opaqueness of the bank functions also led to the financial crisis because obscurity led to the mismanagement of funds. The financial managers are to blame for mismanaging the bank and recklessly lending money.
The government, consumers, and financial management blame the financial crisis that drained the US economy. The government did not regulate borrowing money for businesses or house purposes, and they are to be blamed for that. If the government had combined efforts with the bank managers to regulate borrowing, the economy would not have collapsed, although everything started returning to normal in mid-2009.
References
Adachi-Sato, M., & Vithessonthi, C. (2021). Bank risk-taking and corporate investment: Evidence from the global financial crisis of 2007–2009. Global Finance Journal, vol 49, 100573. Web.
Cumming, D., Girardone, C., & Śliwa, M. (2021). Corporate governance in extreme institutional environments. British Journal of Management, 32(4), 919-946. Web.
Hossain, A. T., & Kryzanowski, L. (2019). Global financial crisis after ten years: A review of the causes and regulatory reactions. Managerial Finance, 4(2). Web.