Reasons for US economic crisis!

Many of you know that all of these economic problems started in US economy. Therefore it is worth to find out how it has happened. This article discusses the reasons for this global financial crisis.
Today almost everybody experiences the warm of this financial crisis. It is really important to



 get an idea about the reason of this global problem.  There is another article which discussed the same topic in a different perspective as well. 

The below was taken from Wiki

“The global financial crisis of 2008–2009 began in July 2007[1] when a loss of confidence by investors in the value of securitized mortgages in the United States resulted in a liquidity crisis that prompted a substantial injection of capital into financial markets by the United States Federal Reserve, Bank of England and the European Central Bank.[2][3] The TED spread, an indicator of perceived credit risk in the general economy, spiked up in July 2007, remained volatile for a year, then spiked even higher in September 2008,[4] reaching a record 4.65% on October 10, 2008. In September 2008, the crisis deepened, as stock markets worldwide crashed and entered a period of high volatility, and a considerable number of banks, mortgage lenders and insurance companies failed in the following weeks.”

As you know the economic conditions are very stable in US and therefore there are plenty of investment opportunities available. Because of the high return people started to invest money in housing projects. Gradually the number of the people and the amount of investment increased. Since the return of the investment is really high and other financial institution started to provide loans to invest in these industries. In addition mortgage rates were also very low and house properties were estimated way above its actual cost. Then after sometime properties had an artificial property values and people kept investing money and no one wanted to control this.

Meantime more and more construction companies started housing projects as it was a high return business by that time. Finally the cannon was fired. The supply exceeded the demand. By that time most of these properties were mortgaged way above its actual cost. With the excess supply property values were drastically dropped even lower than their actual values.


Now what happened is mortgage institutions have thousands of properties in their list and those were estimated way above the actual. Now the value of the property has dropped even below their actual values. This resulted in absorbing a huge loss and it has led to change their stable position. Banks were collapsed one by one.


The extent of the problems has been so severe that some of the world’s largest financial institutions have collapsed. Others have been bought out by their competition at low prices and in other cases, the governments of the wealthiest nations in the world have resorted to extensive bail-out and rescue packages for the remaining large banks and financial institutions.

As shown in the graph the impact is not recoverable.  It will take years to bring all of these back to normal conditions. However this again proves the instability of the world economic system. It was about to make everyone’s life in a deep mess. All of us are being controlled by this economic system but economy itself could not recover this issue and has led to thousands of problems. 

What we can do? rather what we should do?

We should really be conscious about our investments and these will be discussed in another thread.   

I found a detailed article on this and click here to view it