THE CRASH OF 2008

The fall of a global inefficient system.

A predicted colapse that nobody could avoid.

Despite the fact that the crisis was thought to take place in 2008, at the end of 2007, several minor banks went bankrupt and started an unstoppable crash of the globalised economies that would be devastated.

The economic signs: several noticeable causes

The increase in the raw materials price. United States, one of the biggest economies in the planet and one that holds the system in great part, had took several policies (such as free-market regulation, low interests…) after being damaged by the terrorist attack in 11th September of 2001. These procedures led to a real state bubble that was joined by the high costs of Afghan and Iraqi Wars. 

2000’s decade meant the rise of raw materials, although they had had their prices reduced from 1980 to beginning of XXI century. In 2008, petrol and food resources became so expensive that discomfort was spread all around the world, what provoked stagflation  not only in developing countries, but also in the most powerful ones.

Progressive inflation and deflation

According to IMF reports, in 2008 prices reached a historical level in petrol-exporter countries, dute to the increase of currency reserves. However, interest rates were still low in euro-zone and United States.

Eventually, one year later, the situation was completely inverse: deflation had took place and consequences were interest rates close to 0%, as well as extremely high unemployment rate.

Crisis spread throughout the States

Globalised system leads to contagious reactions among economic agents, since situations of uncertainty make investors be more sensible when they have to decide, what reduces investment and economy contracts itself.

Besides this fact, markets are more and more interconnected, so this works as a chain that gets affected step by step.

Comparisons of GDP rates among the most important economies during the crisis.

 United States’ situation

The American country felt is first struggles in 2006, when its real state bubble exploded and it was followed by the credit crisis that had been born in the uncertainty provoked by the rumors of the national investors about a possible recession (data was clearly showing that economy was going to became worse.

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Both consumer and firms suffered from this disaster

In 2007, banks needed liquidity that was finally provided by a central banks intervention; nevertheless, unemployment rate was progressively growing and financial entities went bankrupt, leading to the 2008 collapse of the economy (affecting stockmarkets notoriously too).

Lehman Brothers

Lehman Brothers Holding Inc. was an inversion bank established in 1850 that had become the forth firm according to importance in the sector (with 680 millions of dollars in assets). However, Richard S. Fultz Jr. as CEO of the company, could have sold the company to Barclays and Bank of America so as to save both Lehman Brothers and its employees, but refused to continue with negotiations and he was forced to declare bankruptcy 15th September of 2008.

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Lehman Brothers’ stock prices evolution during September

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