The Causes and Consequences of the Financial Crisis of 2008
English Dossier
Miléna Gandroz
2A Cycle ICM
What are the causes and the consequences of the global financial crisis of 2008?
SOMMAIRE
INTRODUCTION 3
WHY IT HAPPENED? 4 1. Deregulation policy 4 2. Securitization of mortgages 4
HOW IT HAPPENED? 6 1. The subprime crisis 6 2. The financial crisis 6
WHAT ARE THE CONSEQUENCES? 7 1. In the financial sector 7 2. In the United States 8 3. Abroad 8
WHAT IS HAPPENING NOW? 8 1. Some things are changing 8 2. But others remain the same 8
CONCLUSION 9
INTRODUCTION
This dossier is about a story, the story of how and why the financial industry collapsed in 2007/2008. It is not about bad bankers which have created a global crisis affecting every nice people. It is about people who have made some decisions, good or bad, during the last decades and how it led to such a crisis. I have chosen this subject because I want to work in this sector and I am interested in but also because I think it is one of the major events of our century and as we are still facing the consequences, everyone should be interested in understanding this crisis in order to understand how our economy works. I will first explain the different causes of the crisis, and then I will talk about the crisis in itself and the consequences that it brought about. Finally, I will point out what have been done to avoid these same mistakes in the future and what remains to be done.
WHY IT HAPPENED?
1. Deregulation policy
After the Great Depression, the USA has known a forty years period of growth without any crisis. At this time, the banking system was regulated: on one hand, the deposit banks were not allowed to speculate with their clients’ money and on the other hand, the investment banks invested the associates’ money. Starting from 1980, the investment banks became public (with initial public offering) and began to earn a lot of money. This was the beginning of 30 years of deregulation. The
Miléna Gandroz
2A Cycle ICM
What are the causes and the consequences of the global financial crisis of 2008?
SOMMAIRE
INTRODUCTION 3
WHY IT HAPPENED? 4 1. Deregulation policy 4 2. Securitization of mortgages 4
HOW IT HAPPENED? 6 1. The subprime crisis 6 2. The financial crisis 6
WHAT ARE THE CONSEQUENCES? 7 1. In the financial sector 7 2. In the United States 8 3. Abroad 8
WHAT IS HAPPENING NOW? 8 1. Some things are changing 8 2. But others remain the same 8
CONCLUSION 9
INTRODUCTION
This dossier is about a story, the story of how and why the financial industry collapsed in 2007/2008. It is not about bad bankers which have created a global crisis affecting every nice people. It is about people who have made some decisions, good or bad, during the last decades and how it led to such a crisis. I have chosen this subject because I want to work in this sector and I am interested in but also because I think it is one of the major events of our century and as we are still facing the consequences, everyone should be interested in understanding this crisis in order to understand how our economy works. I will first explain the different causes of the crisis, and then I will talk about the crisis in itself and the consequences that it brought about. Finally, I will point out what have been done to avoid these same mistakes in the future and what remains to be done.
WHY IT HAPPENED?
1. Deregulation policy
After the Great Depression, the USA has known a forty years period of growth without any crisis. At this time, the banking system was regulated: on one hand, the deposit banks were not allowed to speculate with their clients’ money and on the other hand, the investment banks invested the associates’ money. Starting from 1980, the investment banks became public (with initial public offering) and began to earn a lot of money. This was the beginning of 30 years of deregulation. The