To Which Extent Were the Financial Institutions Affected by the Recent Ffinancial Crisis?
Financial crisis can be referred to as a period when there is decline or no economic growth. The recent global financial crisis that affected financial institutions in the US can be traced back to December 2007. The genesis of the problem could be attributed to the collapse of the US subprime mortgage and the fall of the price of house units in the United States and other developed economies. The situation was made worse by an upsurge in oil and food crises. This paper is not going to dwell on the causes of the recent financial crisis but on the extent to which it affected financial institutions in the US and Europe.
One indicator that can be used to gauge the extent of the recent financial crisis that hit US was that trillions of money was used in bailing out the collapsed institutions if not on those on the verge of collapsing. It is due to this crisis that merging and acquisition of corporations resulted. Also as a consequence to this, many people lost their jobs. In order to prevent total collapse of these institutions, the governments of developed economies rescued them with bail-outs. For example, the US spent about 14.5 trillion dollars on bail-outs while European nations spent about 2 billion dollars.
Another thing that can be used to measure its extent is the fact that the government bailed these institutions irrespective of who or what led to their collapse. This shows how determined the government was in saving them. This move became very unpopular as it seemed like the governments were socializing the problems of these institutions while privatizing the benefits.
The fact that the problem was not restricted to US alone is another indicator of the extent to which the crisis affected the world. To understand how this affected other nations, one needs to look at the global role big banks play in the economy. So, when there is a credit crunch in any of the economic giants, the ripple effect is felt everywhere. For example, the financial crisis in US also affected some European nations such as Greece and Iceland. Their financial institutions collapsed and needed to be bailed out. For example, in Iceland the institutions had virtually collapsed a situation that forced the government to borrow some bail out money from the International Monetary fund (IMF).
It is right to conclude that if subprime mortgage had been checked in good time perhaps the situation could not have as worse as it turned to be. What was initially thought to be a US problem turned to be a global economic crisis with the worst hit nations being those in the Euro Zone. Financial institutions had to be bailed out or else they would have collapsed completely.
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