Sub Prime Crisis

The world of finance is a complex and complicated system. With derivatives which lies at the frontier of finance and other instruments (eg. Shares, forex, bonds) were constanly pushing the financial market to their boundaries. These instruments generate new leap of faith, which enable capital to be allocated more efficiently and quickly. With that, capital were able to reached those who could not get it previously.The economy in United States (U.S.) was at risk when the september 11 terrorist attacks occured. In response to this, the central banks around the world tried to stimulate the economy by creating more capital liquidity through a reduction in interest rates. This results in investors to sought higher returns through high risk investments. The lenders took on higher risk when they allow subprime borrowers. Eventually, the financial market collapsed. This financial crisis and recession that took place in 2008 has created a lot of commotion amongst the financial institutions such as banks and investment firms. Many of these institutions were either bankrupt or left in huge amounts of debts. This was a serious blow to the U.S. as well as the world economy. It is considered the worst financial crisis since the great depression in 1930s and resulted in the collapsing of financial institutions, bailouts of banks by the U.S. governement and downturn in the stocks market around the world.

Bursting of the Housing bubble

It all started with the bursting of the housing bubble back in 2005. The bursting of the U.S. housing bubble which peaked in 2006, caused the pricing of the securities tied to U.S. real estate to plummet, damaging financial institutions globally.The financial crisis was triggered by a complex interplay of the overvaluation of bundled sub-prime mortgages, questionable trading practices on behalf of both buyers and sellers, as well as a lack of adequate capital holdings from banks and insurance companies to back the financial commitments they...