Prevailing low-interest rates in the economy at the time played a role in encouraging the investors to deal in securitized products due to their safe appearance. Companies such as Federal Home Loans Mortgage Corporation decided to only deal in low-risk mortgages. These low rates also incentivized banks to deal in risky assets in the hope of receiving higher returns in the future. These dealings in high-risk assets in conjunction with the complex financial products in play may have been cited as part of the cause of the financial crisis.
Moreover, the decision by the US government to pass the emergency economic stabilization act, which allowed the treasury to take part in the stock exchange stabilizing the expected rise in stock. However, a greater weight lies in the absence of supervision and regulation in the heat of these happenings. Instead, the regulators took a back seat and tolerated the recklessness. One of the largest investment banks in the world, Lehman Brothers failed in this period of financial crisis, and a counterpart is the multinational insurance corporation, AIG. Other events following this include the plummeting of the US stock market and the drying up of liquidity (Marshall, 31).
Successful companies that were running in this period were also forced to lay off a large percentage of their employees. Unemployment meant reduction in purchase power which directly affected the market supply and demand forces. The carnage that resulted from the financial crisis was not only felt by the financial sector but also by the firms that rely on credit since the absence of credit causes profit making companies close down. Economies around the world were also majorly affected due to the aspect of globalization.
International companies with branches across the globe were unable to sustain the operations of their sister companies abroad, thus, selling out or closing down. Countries whose businesses are majorly linked to the American nation were as well caught up in the same cycle (Polk, 101). Their export-oriented manufacturers hit a dead end owing to the fact that their main markets cut deep in their demands because of the financial crisis. Additionally, the less developed countries were not left out since their markets abroad in conjunction with the foreign investments they depended upon for development regarding capital were lost.
With no or limited supply of goods and merchandises, business in this countries ended up losing businesses. Given
Please type your essay title, choose your document type, enter your email and we send you essay samples