Any time you turn on the television all you hear is talk of a “financial crisis” or “financial meltdown,” but no one ever really takes the time to explain what this really means. The term financial crisis simply means that financial institutions, such as banks lose a large amount of their assets in a short period of time. With this definition, it is evident that this is what is happening in the U.S. economy today. The problem that arises when the banks lose their assets, is that the stock market goes down, which has an adverse impact on investors. Once this happens other business are affected, which in turn affects everyone else as people end up losing their jobs and their assets in the stock market. It is easy to see the spiral effect that develops and why this situation is referred to as a financial crisis. The big question to ask is what caused the banks to lose their assets to begin with? In the current financial crisis, this is due to the fact that banks were lending out too many mortgages to people who could not afford them. This action caused the housing market to grow to quickly and the prices rose dramatically. This market has also been hard hit during this time as people are now not able to get mortgages and foreclosures are on the rise because people are not able to pay for their mortgages. It is quite simple to see how every market is connected and how a change in one has an effect in all other markets. There are many other financial crisis that can be examined as well. The largest and most historic being the Great Depression in 1929.
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