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AFTER EFFECT OF
PRIMEMORTGAGES
KOUSAIN MALIK
SEHRISH TAHIR
SAMI JAFRI
Causes
The initial phase of the economic crisis started in the US with a financial liquidity
crisis, on 9 August 2007, at the interbank lending market when central banks had to
step in with liquidity lending to the banking market. This was a response to a situation
where BNP Paribas temporarily had to block money withdrawals from three hedge
funds - citing a "complete evaporation of liquidity".
The immediate or proximate cause of the crisis in 2008 was the failure or risk of
failure at major financial institutions globally, starting with the failure of Lehman
Brothers in September 2008.
The bursting of the U.S. housing bubble, which peaked in 2006, caused the values of
securities tied to U.S. real estate pricing to plummet, damaging financial institutions
globally and creating an interbank credit crisis. U.S. households often had adjustable
rate mortgages, which had lower initial interest rates. A lack of responsibility, lack of
regulations, inability to pay back loans and fraud brought about the Recession.
Effects in the US
In the U.S., persistent high unemployment remains as of December 2012, along with low consumer confidence,
the continuing decline in home values and increase in foreclosures and personal bankruptcies, an increasing
federal debt, inflation, and rising petroleum and food prices.
GDP began contracting in the third quarter of 2008 and unemployment rate rose from 5% in 2008 pre-crisis
to 10% by late 2009.
Residential private investment fell from its 2006 pre-crisis peak of $800 billion, to $400 billion by mid-2009
and has remained depressed at that level.
Stock market prices, as measured by the S&P 500 index, fell 57% from their October 2007 peak of 1,565 to a
trough of 676 in March 2009.
The net worth of U.S. households and non-profit organisations fell from a peak of approximately $67 trillion
in 2007 to a trough of $52 trillion in 2009
U.S. total national debt rose from 66% GDP in 2008 pre-crisis to over 103% by the end of 2012.
For the majority, income levels have dropped substantially. The United States has seen an increasing
concentration of wealth to the detriment of the middle class and the poor with the younger generations
being especially affected.
Canada and Mexico also slipped quickly into recession.
Effects in Europe
The crisis in Europe generally progressed from banking system crises to sovereign
debt crises, as many countries elected to bailout their banking systems using
taxpayer money.
However, with the exception of Germany, each of these countries had public-debt-
to-GDP ratios that increased (i.e., worsened) from 2010 to 2011. For example,
Greece's public-debt-to-GDP ratio increased from 143% in 2010 to 165% in 2011.
Poland is the only member of the European Union to have avoided a decline in GDP
Effects in South America
On the other hand, the continent experienced a tough agricultural crisis at the
beginning of 2008.
Food prices have increased a lot, due to a lack of arable land.
One of the main reasons for the loss of agricultural land was the high value
offered by the production of biofuels.
The South American countries were affected by both the global slowdown and
the decrease in food prices due to the declining demand.
Argentina, Brazil and Equador have suffered the worst.
Effects in Africa
As a direct result of the late 2000s recession, some economies in Africa have been primarily
affected by reduced global demand and lower prices of commodities such as oil, platinum,
nickel, gold, and copper.
In sub-Saharan Africa, growth for the region as a whole remained reasonably strong (around 5
percent), except for 2009 where the decline in world output and associated shrinking of
world trade pushed Africas growth down to below 3 percent.
The more advanced economies in the region (notably South Africa) have close links to export
markets in the advanced economies, and have experienced a sharper slowdown, and weaker
recovery, than did the bulk of the regions low-income economies.
Africa was not affected because it is not integrated in the world market.
Effects in the Middle East
Oil prices boomed and then sharply decreased affecting all the GCC countries
and OPEC to a large extent.
Two banks owned by the Kuwaiti government also went bankrupt.
Bahrain and Saudi Arabia also suffered significant issues due to the recession.
Iran, even though it experienced slow growth, did not go into recession due to
the various UN embargoes and sanctions on its government.
Effects on UAE
Dubai suffered the worlds steepest property slump in the global recession,
with home prices dropping 50 percent from their 2008 peak.
Things went South quickly in Dubai: Hundreds of billions of dollars worth of
building projects were delayed or cancelled.
Thousands of jobs disappeared.
Dubai suddenly found itself facing the very real possibility that its biggest
state-owned company, Dubai World, could go into bankruptcy.
It warned it was having trouble making debt payments on $59 billion US
money borrowed to pay for all the excess.
Effects in South Asia
India's economy benefited from recent high economic growth which declined
greatly due to the global economic crisis.
Economic growth in India during 2008-09 stood at 6.7%. The global crisis had
less impact of India because exports account for only 15% of India's GDP, less
than half the levels of major Asian economic powers such as China and Japan.
However, unlike other major Asian economies, India's government finances
were in poor shape and as a consequence, it was not able to enact large-scale
economic stimulus packages.
In Pakistan the central bank's foreign currency reserves, when counting
forward liabilities is said to only amount to as little as $3 billion, sufficient for
a single month of imports.
Corruption and mismanagement have combined with high oil prices to damage
Pakistan's economy.
Pakistan's rupee has lost more than 21 per cent of its value in 2008 and
inflation is at 25 per cent.
The government has failed to defer payments for Saudi oil or raise favourable
loans.
China did not slip into a recession in spite of significant economic problems.
The Hong Kong economy officially slid into recession in the final quarter of
2008.
Taiwan announced billions of dollars in spending and tax cuts due to declining
growth and a 26 percent slump in the stock market in 2008.
South Korea narrowly avoided technical recession in the firs.t quarter of
2009.
Japan's economy declined by 0.6 percent in the second quarter of 2008.
Exports in June declined for the first time in about five years falling by 1.7
percent.
The Philippines was the only one of a mere handful of countries in the whole
world to have recorded a positive economic growth in 2009.
Effects in Oceania
Australia avoided technical recession due to a number of factors: the country's low
levels of public debt allowed government stimulus spending; its proximity to the
booming Chinese economy and the related mining boom kept growth ticking over.
Throughout the worst of the global conditions the Australian dollar's 30% drop was
seen as a boon for trade, shielding the country from the crisis and helping to slow
growth and consumption.
The Australian economy avoided recession and the unemployment rate peaked at a
much lower rate than had been predicted.