A financial crisis is a situation in which the value of financial institutions or assets drops rapidly.

A financial crisis is often associated with a panic or a run on the banksin which investors sell off assets or withdraw money from savings accounts with the expectation that the value of those assets will drop if they remain at a financial institution.

A financial crisis can occur as a result of institutions or assets being overvaluedand it can be exacerbated by irrational investor behavior. A rapid string of selloffs can further result in lower asset prices or more savings withdrawals.

If left unchecked, the crisis can cause the economy to go into a recession or depression. The financial crisis was the worst economic disaster since the Great Depression of The root cause has been traced to no one single event or reason. Rather, it was the result of a sequence of events, each with its own triggering mechanism that led to near collapse of the banking system.

It has been argued that the seeds of the crisis were sown as far back as the s with Community Development Act, which forced banks to loosen their credit requirements for lower-income minorities, creating a market for subprime mortgages. The amount of subprime mortgage debt, which was guaranteed by Freddie Mac and Fannie Maecontinued to expand into the early s, about the time the Federal Reserve Options trading tiers began to cut interest rates drastically to fend off a recession.

The combination of loose credit requirements and cheap money spurred a housing boomwhich drove speculationwhich in turn drove up housing prices. In math options trading meantime, the investment banks, looking for easy profits in the wake of the dotcom bust and recessioncreated collateralized debt obligations CDOs out of mortgages purchased on the secondary market.

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Because subprime mortgages were bundled with prime mortgagesthere was no way for investors to understand the risks associated with the product. Around the time when the market for CDOs was heating up, the housing bubble that had been building up for several years was beginning to burst.

As housing prices fell, subprime borrowers began to default on loans that were worth more than their homes, accelerating the decline in prices. When investors realized the CDOs were becoming worthless due to the toxic debt download panfu money maker represented, they tried to unload them, but there was no market options trading tiers them.

This caused a cascade of subprime lender failures, which created a liquidity contagion that worked its way to the upper tiers of the banking system. Two major investment banks, Lehman Brothers and Bear Stearnscollapsed under the weight of their exposure to the subprime debt, and more than banks failed over the next five years.

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Several of the major banks were on the brink of failure had it not been for a taxpayer-funded bailout. Dictionary Term Of The Day. A measure of what it costs an investment company to operate a mutual fund.

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