“During 2007-2008, the world suffered one of the greatest financial crises of all time., To see how things have changed globally ever since, read on…”
If a bank is at risk of running out of cash to function, then it is safe to say that there’s a crisis and it’s going to be an extremely large problem. Unfortunately, that’s what happened back in 2007, when banks globally started to feel the danger of not having sufficient money available.
You can probably predict the outcome once the news was released: everyone immediately ran to the lender´s branches to withdraw their money.
In the UK, some banks, like Northern Rock, were among the first to be impacted by the crisis. Out of the blue, they didn’t have the cash to function to the point where they had to be bailed out by UK´s central bank, also known as the Bank of England, which is still on-going without payments for mis-sold PPI.
Years later it was discovered that it was due to awful lending levels by the US banks. This led to households not being able to meet their mortgage payments due to the new rates caused by those horrible lending levels. The impact on mortgages around the world was so massive that banks needed to secure the money they had available which caused the freezing between lenders and, as a result, you get the financial crisis of 2007-2008.
Any financial crisis will lead to poor financial activity. If there is no economic activity, companies have a much harder time providing employment. The 2007-2008 financial crisis led to substantial unemployment rates.The impact was way beyond mortgages and lenders, and the irresponsibility of others also hit the working activity of the country.
Unemployment rates diminished considerably in the coming years, and by 2016, it was below 5% – not just in the UK, but other countries too.. Even though things are somewhat back to normal, the impact and change on financial conceptions after the crisis is undeniable.
Interest rates are like the language of finances and most of the financial system works based on them. Naturally, after the 2007-2008 crisis, many financial institutions reduced their interest rates in an effort to raise the economy up again.
The logic behind it: if you see that a bank is offering low-interest rates, people will access credit more willingly; therefore the economy starts flowing again.
Not only were individuals affected by the crisis. The government itself suffered from recession in 2007-2008. There is no way the government would raise taxes after such turmoil, but they still needed money to function within the economic system, so they started to borrow money too when in reality they should have opted for frugality.
The crisis also inflicted on government debt, because as a result of the financial crisis, tax collection was substantially lower, hence they increased borrowing and their debt. During the recession, the UK government debt actually doubled but the impact was lesser than in other countries.
Sadly, the recession happened and it did change the order of things, at least in the financial world. But maybe it was necessary to future proof things and it made the system more sustainable. It is really hard to say if the measures taken to deal with recession were effective or not. Sadly, only time can tell if the measures taken were effective as we all hope.