The US 2008 economic crisis hasn’t been forgotten. In fact, most of have it deeply etched in our minds. After the Great Depression, it will be remembered as one of the worst economic crashes in US history.
In the beginning, the 2008 financial crisis directly impacted the banking sector. Banks lost a lot of money as a result of the following:
Over the long term, the economic crisis brought about new regulatory action against banks:
The impacts were far reaching and wasn’t contained just to the banking sector. As a result, it affected all investment channels from forex to shares to commodities.
Before the US 2008 economic crisis happened, the banking industry was forced to allow more people to buy homes because of government regulations. As a result, in the four years prior to the recession, financial giants like Freddie Mac and Fannie Mae bought a large number of risky Alt-A mortgages and other mortgage assets.
These entities charged the consumer hefty fees and received high margins from the subprime mortgages. What was unique about this situation was the fact that they were using the mortgages as collateral to receive private-label mortgage-based securities.
It didn’t stop there as foreign banks also got involved and bought this debt as repackaged collateralized debt obligations.
The tipping point was when American consumers started defaulting on their mortgage payments. This had a domino effect as the banks lost money on the loans and they weren’t just banks in the States, they were banks from all over the world.
When banks lose money, they stop lending to each other. This makes it difficult for businesses and consumers to obtain credit.
The end result was a recession and this meant imports dramatically fell which in turn brought about the global recession.
As confidence in economies vanished, share prices on global stock exchanges took a nosedive. In order to avert any financial crisis in the future, a lot of regulations and standards were passed to ensure transparency.
But there’s a lot of criticism that the legislations that were passed weren’t doing to avert another crisis. So far, many financial bodies including the SEC have not adopted all the proposed rules.
As a result, investors need to keep a close eye on how the banking industry operates to safeguard themselves from the long reaching impact of another US 2008 economic crisis.