2007-2008 financial crisis and what impact it had on the financial markets

Discuss the 2007-2008 financial crisis and what impact it had on the financial markets. Who was impacted? What caused the crisis, and how can a future crisis be prevented? Explain. citation format is APA,+500 words.

Ultimately the main cause of this meltdown was lax regulation allowing for rampant speculation by lenders granting homeowners loans without proper scrutiny or risk assessment; this allowed for an unsustainable level of leverage which later led to leveraged lenders defaulting on their debt obligations creating chaos within global banking networks (Gorton & Souleles 2016). To prevent future crises from occurring governments should take steps to ensure bank lending practices are prudent while also increasing transparency into derivative markets so that potential systemic risks can be identified early before they have time to spiral out of control (Farhi & Tirole 2012). Additionally governments must create systems that allow them access information regarding who owns what assets so if another liquidity crunch occurs authorities will have greater ability intervene quickly before any disaster gets too far out of hand. References: Boone S., Cáceres R., Collard F., Guimaraes P., Robinson J., Seru A. & Wongswan J. (2016) Is It always darkest before dawn? Housing market cycles around the globe .Real Estate Economics 44(4): 1046–1096 DOI: 10.1111/1540-6229.12125 Farhi E& Tirole J.(2012) Collective Moral Hazard , Maturity Mismatch ,and Systemic Bailouts . American Economic Review 102(1): 60–93 doi: 10 109/AER2010190a Garcia D..Liu L,. Shien M..Timmermann A..Mayer K.(2011) How do stock market bubbles affect real economies? Evidencefrom industrial production growth rates during 1927 – 2001 Journal Of Monetary Economics 58(5): 526–550 Gorton G & Souleles N.(2016 ) Specialization In Mortgage Origination And Defaults During The Financial Crisis Journal Of Financial Economics 121(3): 424–448 doi: 101016/j jfineco201511002 Nawaz S & Yang Y I.(2017) Factors driving credit spreads during periods oﬁnancial stress : evidence form major advanced economies International Review otFinancial Analysis 53:83-95

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The 2007-2008 financial crisis was one of the most significant economic downturns in recent history, with catastrophic effects on global financial markets. The crisis began when a U.S. housing bubble burst following years of unsustainable investment activity and rising borrowing costs, leading to a sharp decline in home prices across the country that triggered widespread defaults on subprime mortgages. This chain reaction caused a liquidity crisis in global banking institutions as well as other financial firms due to their heavy reliance on short-term debt financing, resulting in massive losses for investors and creditors alike (Nawaz & Yang, 2017). The impact of the financial crisis was far reaching; virtually all major asset classes were affected by reduced demand and increased volatility throughout 2008 including stocks, foreign exchange (FX), commodities, bonds, and derivatives (Garcia et al., 2011). Banks worldwide suffered because they had loaned money to borrowers who could not repay it due to job losses or falling asset prices; these banks then experienced severe losses from mortgage backed securities that had been repackaged into complex investments and sold around the world. As fears about solvency spread through international capital markets investors panicked and sold assets at a rapid rate exacerbating market declines further (Boone et al., 2016).

2007-2008 financial crisis and what impact it had on the financial markets

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