2008 Crisis In the US , interest rates increased and and its reduced low level of investment in US. It caused increase in number of unemployment. Also mortgage system was effective. House prices was increased and also by FED ,interes rates was increased. Main aim was, when interest rates increase, demand for house will decrease and house prices will decrease. Also, they expect that the investors taking their money from the stock market and they will invest their money to deposits.
Unfortunetly, increasing in interest rate coul not pay their credit. They started default their credit. Banks deal with this porblem actually take back the houses. That’s why Banks demand quarantee to eliminate the asymmetric information. Banks took back house but they can not sell house again. So they can’t earn their money again, liquidity problem arises because there is no cash conversion. Problem started with bankruptcy of bigger banks. In Interbank interest rates started increasing. No one give debt each other. Central bank aimed that, give money to real sector. But banks can not know which one is reliable than they dont give money. They tried to hold money so Central Bank’s aim couldn’t effective. In 2008 Lehman Brothers went bankruptcy. It caused loss of confidence.
What About The Banks?
Central banks decrease the interest rate to 0. In financial system they aim to earn money by giving debt-money to others. Negative interest rate is a negative. When we give debt low interest rate we tend to earn back money with high interest rate in the financial system. Money politics loss their power in real economy. Financial innovation and securitisation; technique through which banks loans are transformed into marketable securities.
Mainly ; asymmetric information mod hazard. For financial liberalization, integration of financial markets leading to contagion. It effect national and domaestic markets quality of institutions such as bank. Last 40-50 year there is a huge financial evoluation. It started especially 80’es which is has develuation start. Also recession was important.