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3 Iceland
1 US The crisis costs US an estimated $648 billion due to slower
economic growth. It also costs US $3.4 trillion in real estate wealth
and $7.4 trillion in stock wealth as per the federal reserve. 5.5
million American jobs were lost due to slower economic growth.
The credit crunch crisis affected all section of people throughout
the country.
US Fed reserve lowered its federal funds rate to provide The credit crisis was primarily The level of total factor
additional liquidity in the economy, expanded its range of reflected in the bond market, as the productivity recovers somewhat
collateral it is willing to accept in return of loans and provided investors then began to avoid risky to its pre-crisis trend over the
direct lines of credit to wider variety of financial institutions. assets in the favor of US treasury medium term. In contrast,
“The Bailout Plan” was brought to the table in which government securities. People lost confidence in capital and employment suffer
would purchase $700 billion of impaired assets from the balance the banking system which further enduring losses relative to trend.
sheets of the bank. excavated the credit issue.
A bank rescue package totaling some £500 billion (approximately As the sterling depreciated during the The forthcoming years of 2008
$850 billion) was announced by the British government on 8 crisis, the export and import financial crisis was devastating
October 2008, as a response to the ongoing global financial crisis. decreased which left firms to either for the savers as the low interest
The plan provided for several sources of funding to be made file for bankruptcy or to cut staff to rates and comparatively high
available in loans and guarantees. This package was designed to keep business health. Due to which inflation rates further eroded the
restore people’s confidence in the banking system. Also the unemployment rate surged leaving purchasing power of the
central bank of UK, “The Bank of England” was among the seven people to default on their mortgages currency. The banks started
countries’ strategic and coordinated effort to calm the financial and housing prices dropped drastically. relying more on the retail
crisis by cutting the interest rates by 0.5%. Banks and building societies were deposits. which led to fierce
recognizing direct losses from even competition between the banks.
prime mortgages. The financial institutions offering
mortgages introduced stringent
acceptance criteria for
mortgages.
Effects Comments
Long term
In terms of long term, people invested in local Iceland s an example of poor macroeconomic
businesses, including real estate and private policy where the banks were privatised and
equity. Tourism boomed when local prices fell sold to Russian owners. Ignoring future
thanks to the low currency exchange rate. It considerations for the short term profit and
increased further after both the 2010 and 2011 arrogance led to Iceland's downfall.
volcanic eruptions.
The Americans did realize the importance of US government did a good job acting upon the
savings, importance of emergency funds and most actions required during the crisis time and
importantly realized that no job is absolutely helped maintaining the confidence of the
secure and no revenue source is without risk. people in the financial institutions. Without
Getting a mortgage has become tougher in US with government interventions the situations
government introducing new criteria to obtain would have been more devastated.
loans.
The long term effects of the crisis had actually The government announced rescue package in
been good for the government in some areas. The the form of short term loan to bail out the
people has started relying less on the credit and people from the financial crisis. Even though
has become more wary of the situation that they US and UK banks are back on the track after
might face in case of another such situation arises the financial crisis, but the ways through
in future. The labor productivity and high which they have been was totally different. US
unemployment rate continues to be the main bailed out many banks in the process of
woes of the British government. recovery whereas UK didn’t have any plans as
such and it left many banks on their own
leaving them to tackle the problem on their
which resulted in them filing for bankruptcy or
nationalizing the banks.