2008 Global Financial Crisis

Financial crisis generally refers to all or most financial indicators in a one or several countries deteriorate rapidly in a short duration such as short rate, monetary assets, stock price index, inflation rate and so on. Financial crisis usually come along with large amount of business failures, the increased unemployment and economic depression, sometimes even results in social turbulence.

The global financial crisis erupted in 2008 is the latest and most serious one after the Great Depression in 1930, which brings great damage to the global economy. It is caused by the Subprime Mortgage Crisis in America and gradually evolves into an international financial crisis. It has a close relationship with the derivatives market .The Subprime Mortgage Crisis began to show its effects in the middle of 2007.The American second-largest subprime mortgage company “New Century Financial Company” went bankruptcy, then more than 20 suppliers of subprime mortgage declare bankruptcy ,suffer from great losses or seek to be acquired. Large amount of subprime mortgage formed bad debt and depreciated the related securities by a large margin. Then subprime mortgage crisis broke out. In July 2008, the giants in home mortgage market “Fannie Mae and Freddie Mac” were in trouble and taken over by  American government. Then in September,  the fourth-largest investment bank “Lehman Brothers” went bankrupt . Also, “Goldman ”and “ Morgan Stanley” converted into bank holding companies. The largest savings bank “Washington Mutual Bank” and the third-largest investment bank “Merrill Lynch” have been acquired by U.S. regulators and bank. This crisis spread rapidly to other major financial markets in Europe and Asia and finally became a global financial crisis.

The stock markets have fallen around the world, and many large financial institutions have collapsed or been acquired. Governments in no matter the richest or undeveloped countries came up with a series of polices to save the market and bail out their financial systems. In the following articles, the different financial rescue ways in China and USA will be compared and discussed.