The causes of catastrophic financial events that started unfolding in 2007 were many and varied, but one inescapable fact is that consumers in America and Europe (especially the UK) had been living in a fools’ paradise. For years inflation had been low – mainly as a result of cheap imports from the Far East – while interest rates were depressed by vast inflows of capital from those self-same Asian economies as well as the oil- producing countries.
A manic spending spree saw house prices rocket and complacent politicians announcing that the era of ‘boom and bust’ was over. They were so wrong. Over-optimistic consumers had kept a • dangerous economic model afloat, eagerly indulging their every whim with easily borrowed, cheap money. They were assisted by creative bankers, who earned massive bonuses by creating financial instruments that turned out to consist of no more than smoke and mirrors – many involving vast loan packages sold to fellow banks that purported to be sound, though actually were based on debts incurred by companies and individuals who couldn’t afford repayments.
It couldn’t last. The first ominous cracks appeared in 2007, when housing bubbles burst. This was followed by a run on the highly leveraged (over-borrowed) Northern Rock Bank in the UK that presaged the demise of numerous mortgage lenders. It came to a head in September 2008 with the collapse of New York’s once-mighty investment bank, Lehman Brothers. International financial markets panicked, vital inter-bank lending dried up and governments had to step in with massive bailout packages to prevent the world sliding into another Great Depression.
It would be two years before signs of recovery appeared in developed Western economies – with the vast sums borrowed by governments to combat the crisis sure to be a heavy financial burden on their citizens for a generation or more.
When was the Global Financial Crisis: 2007-2009
Where was the Global Financial Crisis: International
What was the Global Financial Crisis Toll: No wall-Street-Crash-style suicides were recorded at the height of the crisis, but numerous banks and businesses failed with severe consequences for countless individuals and the shocked world economy.
You should know: Even as tentative recovery got under way in the recently humbled economies of the USA, Europe and Japan – with the hesitant return to annual growth sometimes measured in a fraction of one percentage point – countries such as China were already powering ahead with growth rates that in some cases approached ten per cent. This serves as a potent reminder that the balance of global economic power is sure to tilt in favor of the Far East’s emerging tiger economies as the 21st century unfolds.