What was 'The 2008 Financial Crisis'

The 2008 financial crisis was one of the biggest shockwaves to hit the finance industry since ‘The Great Depression’. The financial crisis began with the collapse of the Lehmann Brothers firm. Theorist Lioudis (2021) stated that Lehmann’s downfall started with their stock falling sharply as the credit crisis erupted in August 2007 with the failure of two Bear Sterns hedge funds. As well as this many people feared that Lehmann Brothers would be the next to fall following the collapse of the two Bear Sterns hedge funds, this in turn led to their shares plummeting and this was a key event in their downfall. The Lehmann Brothers firm continued to suffer and struggle and eventually on the 15th September 2008 the firm collapsed, however as discussed previously signs had been there for a while that the firm was on the edge. The collapse of the Lehmann brothers firm had a huge affect on the financial industry due to the sheer size of the firm. However, while the collapse of the Lehmann Brothers firm had a massive effect on the financial market, it wasn’t the only cause of the crisis. Singh (2021) highlights that several other factors contributed to the crisis when he stated “low-interest rates and low lending standards fuelled a housing price bubble”. This was significant as many people borrowed significant amounts of money as there was extremely low interest rates and used it to purchase property that in relation to their income would be well over their budget. 

As stated previously, the housing crisis had a significant effect in causing the financial crisis in 2008, however there was also a mortgage crisis that contributed, this is because banks and lenders sold their mortgages on the secondary market which led to them becoming worthless. Due to the devastation caused to the world economy by the financial crisis a global recession occurred, house prices crashed and millions of people lost their jobs. Pettinger (2019) refers to the recession as “the economic downturn, which began after the 2007/08 global credit crunch and led to a prolonged period of low and negative growth, rising unemployment and a period of fiscal austerity”. Throughout my research into this topic I have tried to pinpoint what I personally believe was the main factor in causing such a financial disaster to occur, however, I believe that it was not a case of a single factor triggering a collapse, it was more likely that a perfect storm as such was brewing and that each of the factors discussed above contributed in their own right towards the financial crash. In my next post I plan to delve deeper into this subject area to discover and understand how this crash and recession impacted different countries around the world and discover if any parts of the world were more negatively affected than others. 

Thank you for reading and I appreciate any feedback on my post.

Adam

Lioudis, N., 2021. The Collapse of Lehman Brothers: A Case Study. Investopedia. Available at: https://www.investopedia.com/articles/economics/09/lehman-brothers-collapse.asp [Accessed 1 March 2021].

Pettinger, T., 2019. The great recession 2008-13 - Economics Help. Economics Help. Available at: https://www.economicshelp.org/blog/7501/economics/the-great-recession/
[Accessed 1 March 2021].

Singh, M., 2021. The 2007-2008 Financial Crisis in Review. Investopedia. Available at: 
https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp
[Accessed 2 March 2021].



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