Business Overview

After the great depression, there was no room for another dramatic impact on the world economy as far as the world population was concerned. That is why it was as surprising as ever that at the end of 2007, the markets began to turn around. It was the beginning of what many thought to be the next great depression. The economic downturn that started affected banks globally and in turn nations and citizens across the world. It sparked questions of why? And how will the world grow out of this financial rut? That is where the role of governments came into play. Governments have continued to provide bailouts, and other regulatory methods with the hopes of turning the market around. But what started this economic recession in the first place?

The economic downturn that was felt by nations started due to one central policy in the United States. It has lead to a ripple effect, bringing many banks around the world to their feet. It started with the idea of making every U.S citizen a homeowner. It may have seemed like a bright and thoughtful idea, but many failed to realize the consequences. Banks helped people with low credit ratings and high risks of default obtain subprime mortgages that were meant to boost real estate owners in the U.S. However, when the interest rates doubled two years after the issuance of a subprime mortgage, many began defaulting on their mortgage. Because these subprime mortgages were basically insured by the government, banks were careless and began giving away more and more of these mortgages and selling them back to the market. And soon, banks across the world had sold off parts of different mortgages to each other. This caused ripple effects within the economy, leading to credit crunches, an increased unemployment rate due to the decreased profits of companies and so on. When one major country was out of room to pay back investors, all banks across the world felt the effect. And when it became such a global problem governments across the...