Financial Crises Essay

Submitted By Cordova520
Words: 1430
Pages: 6

There have been many financial crises that have made significant damage to economies. Some of those crises still live on today as the consequences of some actions still are felt in many countries and economies. The three crises that will be examined will be the Dot-Com Bubble, the Great Recession in the United States and the Greek Crisis. A detailed analysis will be given of each crisis including a comparison of the different events.
The first crisis to be examined will be the Dot-Com crisis. This crisis occurred from 1997 to 2000, with the effects of its aftermath being felt until 20021. The country that it affected was just the United States. This crisis was caused by the bubble growth of Dot-Com companies. Dot-Com companies were businesses that were experimenting in the wave of the internet world. During this period Dot-Com companies or companies that wanted to join this surge, would add an “e-“at the beginning of their business or a “.com” to be a part of this movement1. This Dot-Com movement ended up having soaring stock prices for companies that joined this movement. Another cause was the free spending of these Dot-Com companies. Company’s believed that their survival was dependent on expanding its customer base slowly. In turn, companies disregarded annual losses that would soon hurt them significantly1. The resolution for this crisis was the stock market taking a substantial loss. A lot of these companies could not recover from this economic collapse so they had to file bankruptcy. A lot of these companies also were bought out. Although this crisis hurt the stock market, it was the businesses that suffered. No government intervention was needed luckily to solve this crisis.
The second crisis was the Great Recession in the United States. Signs of the recession were evident in 2007, but the United States would not enter this recession until 20082. The United States is currently still recovering from this recession and will continue to recover for a while. The United States recession affected the United States the most. It has caused substantial economic impacts and losses. However, since the United States is such a powerful country, this crisis has affected many other countries around the world. To sum it up, any country that conducted business with the United States was affected by this crisis. There were many different causes for this crisis. The first was the Securization Food Chain of mortgages2. This means that financial conglomerates, investment banks and insurance firms were linked together in the trading of mortgage derivatives and other derivatives. With this monopoly of firms, loans were being sold and traded to make huge profits. This would increase home prices tremendously. The second cause was that this monopoly of firms was letting people who could not afford homes, afford them. They would finance anyone with the implication that home prices would raise. They would also finance mortgages with adjustable interest rates which would cause homeowners not to be able to afford their homes in the long run. Another contributing cause was the offshoring of American jobs. Businesses were trying to save money by offshoring jobs which in the end contributed to a higher unemployment rate. The fourth contributing factor was the allotment of unemployment rate to control inflation. As the unemployment rate raised so did inflation causing economic failure. Lastly, mergers between large companies were allowed. These mergers reduced tax revenues for large companies and cut employment of employees thus contributing to unemployment as well2. All these causes produced the biggest economic collapse for the United States since the Great Depression. The resolution ended up with government intervention and regulation. This resulted in a bailout for all the companies affected by investing in the mortgage market. This bailout has helped push the United States economy to start recovering. However it is important to note that the…