The Start of the Global Financial Crisis (2008)

Jan 4, 2009Updated 8 months ago

Falling Share Prices
The global financial crisis came to the forefront of the business world and world media in September 2008, with the failure and merging of a number of American financial companies. It was not a surprise -- many business journals had been commenting on the stability of the leading American and European financial firms following the Sub-Prime Mortgage Crisis. Much of the American economy is built on credit with firms borrowing money from other firms and the general consumer borrowing money for homes and cars. Many people were taking advantage of the housing boom in the US when it ended, leaving both investors and mortgage companies in trouble.

Timeline of Events Leading to the Global Financial Crisis

On 7 September 2008, it was announced that two firms, Fannie Mae and Freddie Mac, would be nationalised to try to ensure the financial stability of the two firms.

One week later, on the 14th September 2008, it came to light that the financial services firm, Lehman Brothers, would file for bankruptcy after being denied support by the Federal Reserve Bank. Later the same day, the Bank of America announced that it would be purchasing Merrill Lynch.

Due to the above factors, there was major instability on the global stock markets with majo r decreases in market value between the 15th and 17th of September 2008.

On the 16th September, the American International Group (AIG), which suffered due to its credit rating being reduced, was helped by the Federal Reserve which created an $85 billion credit facility to stop it from collapse.

Over the next two weeks, more banks failed and the two remaining banks-Goldman Sachs and Morgan Stanley converted into 'bank holding companies' so that they had more access to market liquidity. Numerous plans were put forward with intent to solve the crisis and in the end President George W. Bush and the Secretary of the Treasury announced a $700 billion financial aid package intented to limit the damage that the previous few week's events caused. The plan was received well by investors on Wall Street and around the world.

On 28th September it was announced that Fortis, a large banking and finance firm would be semi-nati onalized with Luxembourg, Belgium and the Netherlands investing over 11 billion Euros into the company. On Monday 29th September, it was announced that the US bank Wachovia would be bought up by Citigroup (this deal fell through in early October 2008 and Wachovia opted for a more favourable offer from Wells Fargo) and stock market values fell dramtically in both the US and Europe. Later that day, Iceland nationalized the Icelandic lender Glitnir.

Finally, on Tuesday 30th September 2008, stock markets begain to rise again, although the credit markets remained very tight. It was also announced that 9 billion Euros was being made available for the bank Dexia by France, Belgium and Luxembourg.

Consumer spending has fallen, and banks a much less likely to approve loans, and with many countries now in a recession, there will me more hard times ahead.

The events described above started a plethora of problems in the economic and political world and continued through the en d of 2008 into the beginning of 2009 and is likely to continue effect the world for months and years to come.