Macro

Nikhitha.
Good afternoon, everyone. Today, we’ll delve into the 2007-2008 Global Financial Crisis, a pivotal
moment that reshaped the world economy. We’ll explore the causes, the cascading effects, and the
attempted solutions.
Before diving into the specifics, let's know what is a financial crisis is, it’s a period of significant stress
within the financial system, marked by a loss of trust, bank failures, and a sharp decline in asset
values. This often leads to economic downturns and widespread financial strain.
Here are some types of financial crises:
Banking crisis
Also known as a bank run, this crisis occurs when financial institutions are feared to be insolvent due
to bad loans and investments. This can lead to an outflow of funds and bank runs.
Credit crisis
Also known as a credit crunch, this crisis occurs when participants in an economy lose confidence in
having loans repaid by debtors. This can lead to a limitation of loans and the existing loans.
Currency crisis
This crisis is often associated with a real economic crisis and can raise the probability of a banking
crisis or a default crisis.
Praveen.
The Global Financial Crisis (GFC) was a period of extreme stress in global financial markets between
mid-2007 and early 2009. It was the worst economic disaster since the Stock Market Crash of 1929.
The crisis was primarily triggered by the collapse of the U.S. housing market bubble and the
subsequent failure of major investment banks
Banks and lenders had been offering risky, subprime mortgages to homebuyers who could not really
afford them.
When many homeowners defaulted on their mortgages, the value of these securities dropped,
causing huge losses for banks and investors
This led to a credit crunch, Businesses and consumers found it much harder to borrow, due to a
sharp decline in economic activity, investment, and international trade worldwide
Unemployment rose dramatically, Governments and central banks responded by lowering interest
rates, and implementing economic stimulus measures to try to stabilize the economy
However, the effects of the crisis stayed for several years, with many countries experiencing a
prolonged recession known as the "Great Recession".
Reasons.
There was a rapid increase in housing prices in the U.S. and parts of Europe.
Banks and lenders offered risky, subprime mortgages to borrowers who could not afford them.
lack of regulation and oversight of the financial industry.
Large global imbalances in savings and investment.
Low interest rates and an increase in the money supply made it easy for individuals and institutions
to borrow and invest heavily.
Jyoti.
Before the GFC:
Banks and lenders offered risky subprime mortgages to borrowers with poor credit, fuelling a rapid
increase in housing prices and creating a housing bubble.
These subprime mortgages were bundled into complex financial products like mortgage-backed
securities (MBS) and sold to investors, obscuring the true risks.
Banks and investors borrowed heavily to expand their lending and purchase these risky assets,
magnifying potential profits but also losses.
Regulation of subprime lending and MBS products was too careless, allowing risky practices to go
unchecked.
After the GFC:
The effects of the crisis remained for several years, with many countries experiencing a prolonged
recession known as the "Great Recession" and high unemployment rates.
Housing prices fell, many subprime borrowers defaulted on their mortgages, leading to a wave of
foreclosures.
The losses and lack of trust in the financial system led to a credit crunch.
Vishwanath.
Central banks lowered interest rates to very low levels to stimulate economic activity.
Central banks provided large amounts of liquidity to institutions and banks with good assets that
could not borrow in financial markets.
Central banks purchased a substantial number of financial securities to support dysfunctional

markets and stimulate economic activity.
Governments increased spending to stimulate demand and support employees throughout the
economy, guaranteed deposits and bank bonds.
purchased ownership stakes in banks to prevent bankruptcies.
Regulators stepped up scrutiny of banks and other financial institutions.
New global regulations were implemented.
Regulators became more vigilant about how risks can spread throughout the financial system.[1][3]
Pravesh.
In conclusion, the 2008 financial crisis was caused by risky lending practices and a housing market
collapse, leading to widespread economic instability. Government interventions and regulatory
reforms helped stabilize the situation, support recovery efforts and the fiscal policy measures,
enhanced financial regulation and supervision, international coordination and reform, and other
crisis management highlighting the need for responsible financial practices to prevent similar
crises in the future.

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Nikhitha.

Here are some types of financial crises:

lack of regulation and oversight of the financial industry.

Large global imbalances in savings and investment.

Before the GFC:

After the GFC:

Central banks purchased a substantial number of financial securities to support dysfunctional

Regulators stepped up scrutiny of banks and other financial institutions.

New global regulations were implemented.

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