“The traces of the Global Economic Crisis can go as far back as 2007 & the
downfall of the $8 trillion dollar bubble in the US housing market – pre-2007,
there was a housing boom & more & more houses were being built, because
there was demand for more houses. Though in 2007, the housing boom led to an
over-supply of houses, meaning housing prices started to go down-hill & in
turn, many people had to walk away from their mortgages & let the banks
seize control of their houses (as they couldn’t afford to keep paying the
mortgage off).
One of the first banks to fall victim of the crisis
was an UK bank called Northern Rock which in September 2007, asked the Bank of
England for protection – this lead to a bank run, where people lined outside the
banks branches to withdraw their money (basically, it was an consumer &
investor panic). It wasn’t for nearly another year before the ‘domino effect’
started to happen in the United States, when in one day (September 7th) -
IndyMac Bank (the largest mortgage lender in America), Fannie Mae & Freddie
Mac – all banks, all collapsed & went into government ownerships
(after the American government took over them). A week later (on September
14th), Lehman Brothers filled for bankruptcy, Bank of America brought out
Merrill Lynch (one of the largest banks in America) & AIG (American
International Group) suffered a credit crisis, which could have effected
insurance policies around the world, luckily it didn’t after an emergency
package from the American Government which bailed it out.”
So basically what happened was, when the housing boom in 2007 ended & banks started to take control of houses (after people walked away from their mortgages), traders were worried about the economy going into a free-fall about the ‘housing bubble’ bursting & due to this, some banks will go into a bankrupt & be forced to shut – their worries were realised in September 2008, when a whole amount of large banks collapsed & most had to go into government ownership.
