Day 13: The 2008 Economic Crisis
In 2008 a severe financial crisis occurred around the globe. All having starting in the US due to their banks being permitted (through the deregulation of the financial industry) to engage in risky hedge fund trading. In order to support these new ventures the banks raised mortgages (demanded more money) in order to lower the amount they needed to lend, ensuring their liabilities were less than their assets. This resulted in the subprime mortgage crisis; house prices dramatically increased creating the recession. This affected other countries as well, like the UK.
Being a global recession the UK suffered severe downturn*. Many thousand businesses closed resulting in millions of citizens losing their jobs, mass unemployment struck. With international trade declining (especially with the US) the economy slowed. The UK’s GDP fell the greatest amount since the great depression in the 1930s. At the time the Labour Party was in power (with Gordon Brown as PM). In order to combat the recession they planned to use fiscal consolidation. This involves increasing taxes while cutting spending, this was aimed to lower public debt. Since then financial regulations have been made in order to provided a strategy incase of a future crisis. Protection was provided through larger capital reserves*. To reduce risk more liquid funds will be given in case of sudden funding gaps.
*a decline in economic, business, or other activity.
*a fund or account set aside for major long-term investment projects or other anticipated expenses.
