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Causes Of The Current Financial Crisis




The causes of the current financial crisis, preceded the stock market crash of 2008. These practices undertaken by many financial institutions that offered mortgages for people to purchase a home. Because many lending institutions were encouraging people to take on more debt than they were able to handle, the end result was a bubble in the value of homes that affected the global economy. Adjustable mortgage rates were favorable at the time of purchase but quickly changed that found many people with monthly payments far exceeding their original expectations. These added expenses caused many people to default on their loans. To complicate manners, many of these lending companies sold their interest in the mortgage to other organizations.

With many homes entering into foreclosure, the companies that owned the mortgages found themselves with increasing debt burdens. This in turn resulted in losses that affected the stock market. The addition of efforts that allowed the deregulation of many businesses, the causes of the current financial crisis became many-fold. As the housing bubble burst, the insecurities in other areas of the economy became more apparent. All of these factors combined to cause the stock market to tumble. With a number of people having substantial savings in various stocks, these earnings vanished.

The major causes of the current financial crisis can be directly linked to the failure of financial institutions to regulate their behaviors. With the government making fewer efforts to prevent reckless behaviors and many corporations increasing their risks, the downturn in the economy saw many of these firms become insolvent. Many of the individuals involved had little idea of what was actually occurring and unprepared to take evasive action. There were widespread occurrences of oversight and a lack of ethics in operation. Complex financial systems quickly fell apart as the foundation was destroyed.

As economists and corporations devised new ways of conducting business to increase profits, they undertook greater risks without understanding the consequences. Some of these practices were based upon unfounded ideas that harmed the overall infrastructure of the economy. The causes of the current financial crisis are complex with much of the blame stemming from the housing market. Because lending institutions were allowing people to obtain mortgages without the necessary financial resources, many people suffered. The greed of some corporations led to major losses for much of the world. The dream of maintaining ownership in property has become more difficult for many individuals because of poor practices utilized by unethical approaches to conducting business.

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