The Financial Crisis and Its Impact in the World Economy

The Financial Crisis and Its Impact In The World Economy

The financial crisis of 2008 led to a global economy distress, costing millions of people all their savings, jobs and homes. To analyze how the crisis had a head start is important to pay great attention on what was happening in Iceland prior to 2008 – Iceland was a stable democracy with a high standard of living. Prior to the crisis, the unemployment rate and government debt were very low. They had a perfect infrastructure: food production, clean energy, good healthcare and education – However, in 2000, the country’s government began a policy of deregulation, which resulted in tremendous adverse consequences to the environment and the economy. One of the first policies of deregulation was to allow Multinationals Corporation to build giant aluminum smelting plants, destroying Iceland’s natural energy sources.

In the economy sector, the deregulation happened with the government privatizing the country’s three largest banks, and in a five year period, these banks, which had never operated outside of the country, borrowed $120 billion dollars, which was about ten times the size of Iceland’s economy - As a result, stock prices went up by large amounts and house prices more than doubled. The American accounting firm KPMG audited these banks and gave them the highest possible investment rate: AAA, which was far from being the real situation on those banks. And, when the truth came out, and all those banks collapsed, unemployment rate tripled in as little as six months.

In the United States, the bankruptcy of Lehman Brothers in 2008, and the collapse of the world’s largest insurance company, AIG, generated a global financial crisis – Asian stocks plumed; stock market fell by the largest point drop in history. It resulted in a global recession, with more than 30 million people unemployed and a debt that doubled during this period in the United States.

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