2008 Global Financial Crisis

¿What was it?

The Global Financial Crisis of 2008 was a severe worldwide economic crisis
caused by problems in the housing market, risky lending by banks, and a lack
of financial regulation. It led to a global recession, financial institution failures,
and required government interventions to stabilize the economy.

History
● The Federal Reserve, which is like the money boss of the U.S., saw a small
recession coming in 2001. So, they lowered interest rates a bunch of times
between 2000 and 2001, making it cheaper for people to borrow money. This
led to more people buying stuff like homes and cars. But it also created a
housing bubble, where home prices shot up really high. (The housing bubble
was a period when the prices of houses increased very quickly and went
much higher than their actual value).

● Banks changed the way they gave loans to riskier customers, making it easier
for them to get loans, even if they had bad credit. This was because home
prices were going up, so even if people couldn't afford their loans, they could
sell their homes for more money. Banks made a lot of money from these risky
loans.

● Banks also bundled lots of these loans together and sold them as
investments. This made banks and investors lots of money when home prices
were high. But when home prices fell, these investments lost their value, and
it caused a big problem.

● In 1999, some laws changed, allowing big banks to mix with other financial
companies. This created huge banks that were too big to fail. The government
also relaxed some rules, letting banks invest more in these risky investments.

● Before the crisis, the world's economy had been doing well for a long time, so
everyone thought things would be stable. This made a lot of people, including
bankers and government officials, ignore signs of trouble and keep making
risky decisions. This led to the big financial crisis.

How it spread around the world

 1. Global Connections: Imagine the financial markets are like a big web. When
the U.S. had problems with its housing market, it shook the entire web
because everyone is connected.

2. Money Loss Everywhere: Many banks and investors from different countries
had put their money into U.S. homes and other complicated things. When
U.S. home values dropped, these banks and investors lost a lot of money,
and it affected banks all over the world.

3. Banks Stopped Trusting Each Other: Banks usually lend money to each other,
but after the crisis, they got scared. They didn't know which banks were in
trouble, so they stopped lending. This caused problems because banks need
to borrow money from each other to keep things running smoothly.

4. Global Economic Slowdown: Because of the crisis, people worldwide started

spending less money, and businesses struggled. This had a ripple effect on
trade and made things more expensive.

5. Investors Got Nervous: People who invest money got worried about losing
more, so they moved their money to safer places. This created more
problems for countries trying to recover.

6. Money Worth Less: In some places, the local money lost its value. This made
things from other countries more expensive and caused inflation.

Consequences
1. Global Economic Slump: The whole world went through a tough time with
less money flowing, businesses struggling, and people losing jobs.

2. Big Banks in Trouble: Major banks faced big money problems, and
governments had to help them out so they wouldn't collapse.

3. Homes Lost Value: Houses became cheaper, and many people couldn't
afford to keep their homes.

4. Hard to Get Loans: It became really tough for businesses and people to
borrow money because banks were scared to lend.

5. Stock Markets Went Crazy: Investments lost a lot of value, making stock
markets unpredictable and causing people to lose money.
6. Governments Borrowed More: To fix things, governments borrowed a lot of
money, so they increased debts.

7. Cutting Spending: Some countries had to spend less money on public

services like schools and healthcare to deal with their debts.

8. Lots of People Lost Jobs: Many people lost their jobs, and the difference
between rich and poor got even bigger.

9. New Rules for Banks: Governments made new rules to control banks better
and prevent another crisis.

10. World Power Shift: Some countries that weren't as affected became more
important in the world economy.

11. Effects Lasted a Long Time: Even after things got better, the problems from
the crisis stayed around for a long time, affecting how countries and people
did things.