The Global Financial Crisis
The Global Financial Crisis: Causes, Remedies and Discourses
The Global Financial Crisis of 2008-2012 is widely considered to be second in severity to only the Great Depression of the 1930s. Sardonically coined as the ʻGreat Recessionʼ by commentators and media alike, what began as a housing crisis in the United States rapidly degenerated into a systemic mess that wrecked brand-name financial institutions, led to government bailouts and in some cases, liquidation. The crisis reduced consumer wealth in the region of trillions and sparked off a series of recessions in both the developed and developing world. In this essay we will look at the causes, evaluate the measures taken to contain it and examine some of the underlying discourses that plied the timeline of the recession.
The subprime mortgage crisis
Easy credit conditions in the United States led by steadily decreasing interest rates and an influx of foreign funds created a housing bubble, which was financed by a large number of subprime mortgages. These were easy to obtain and put home purchasing power into the hands of consumers who received poor credit ratings and ran higher risks of not maintaining the repayment schedule or worse, default. Such ʻsecond-chanceʼ loans are offered to borrowers at higher interest rates and less favorable terms to hedge lenders against the higher credit risks (Barrow 2009). These mortgages were then repackaged and sold as investment products called collaterised debt obligations (CDOs) or mortgage- backed securities (MBS) in a process known as securitization. Government-sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac traditionally bought the mortgages and repackaged them in a secondary mortgage market to investors, allowing lenders to reinvest into more lending and thus increase the number of lenders in the mortgage market. Intense competition between mortgage lenders for revenue and market share exacerbated relaxed standards in lending due to limited supply
The Global Financial Crisis of 2008-2012 is widely considered to be second in severity to only the Great Depression of the 1930s. Sardonically coined as the ʻGreat Recessionʼ by commentators and media alike, what began as a housing crisis in the United States rapidly degenerated into a systemic mess that wrecked brand-name financial institutions, led to government bailouts and in some cases, liquidation. The crisis reduced consumer wealth in the region of trillions and sparked off a series of recessions in both the developed and developing world. In this essay we will look at the causes, evaluate the measures taken to contain it and examine some of the underlying discourses that plied the timeline of the recession.
The subprime mortgage crisis
Easy credit conditions in the United States led by steadily decreasing interest rates and an influx of foreign funds created a housing bubble, which was financed by a large number of subprime mortgages. These were easy to obtain and put home purchasing power into the hands of consumers who received poor credit ratings and ran higher risks of not maintaining the repayment schedule or worse, default. Such ʻsecond-chanceʼ loans are offered to borrowers at higher interest rates and less favorable terms to hedge lenders against the higher credit risks (Barrow 2009). These mortgages were then repackaged and sold as investment products called collaterised debt obligations (CDOs) or mortgage- backed securities (MBS) in a process known as securitization. Government-sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac traditionally bought the mortgages and repackaged them in a secondary mortgage market to investors, allowing lenders to reinvest into more lending and thus increase the number of lenders in the mortgage market. Intense competition between mortgage lenders for revenue and market share exacerbated relaxed standards in lending due to limited supply