What was the main cause for the 2008 stock market crash?

Question

What main problem was there that led to the 2008 crash? What was the cause of the problem? What are some possible ways to fix the problem?

Answer 1

lack of confidence



fear



time

Answer 2

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RE:

What was the main cause for the 2008 stock market crash?

What main problem was there that led to the 2008 crash? What was the cause of the problem? What are some possible ways to fix the problem?

Answer 3

The reasons for the crash and it's continued frenzy is somewhat complicated. I will try to keep it in simple terms.



This whole business started when the Real Estate markets peaked and started to plunge. The speculative nature of the past few years started this whole mess in motion. At the same time, defaults & foreclosures started to hit the banks. This in turn caused the mortgage paper insurance backers to get called on their guarantees. These credit default swaps and derivatives were issued by the big insurance companies like AIG and thru the big Wall Street Investment banks. Only problem is that there were so many guarantees, much more so than the underlying properties. I might add that almost nobody understands these, including the people that underwrote them and my neighbor who controls a billion dollar fund. This in turn caused panic on the street and throughout the world, and set off a chain of horrific events.



In addition to this, the short sellers had a field day pounding the markets into oblivion. II wrote about my solution to this in a blog that I was experimenting with which you can read at http://kabbalah-allan.blogspot.com/



Hope that helps

Answer 4

As I see it, the crash had two main reasons:



First, the market never fully deflated from its tech bubble high in the late nineties. Not even the crash down to Dow 7300 in 2002 brought the market back down to earth because the price to earnings ratio was still around 20 which was still among historical high points (the historical average is around 15 and throughout history it rarely got below 10 or above 20).



Second, the real estate boom over the last few years created a lot of home equity which people used like ATM's to fund lavish life styles. This consumption created record profits which caused the Dow Jones to bounce back up to around 14000. But now we are realizing that those record corporate profits were not because of the strength of those businesses but because of all of the home equity people were tapping into.



We are now in the process of trying to figure out exactly how healthy our economy is and as these market fluctuations are telling us, we don't quite have it figured out yet.



The solution is for Americans to stop treating their lives and corporations like casinos and do a better job of evaluating the risks in life and in business.

Answer 5

Beginning on September 16, failures of large financial institutions in the United States, due primarily to exposure to securities of packaged subprime loans and credit default swaps issued to insure these loans and their issuers, rapidly evolved into a global crisis resulting in a number of bank failures in Europe and sharp reductions in the value of equities (stock) and commodities worldwide. The failure of banks in Iceland resulted in a devaluation of the Icelandic Krona and threatened the country with bankruptcy. Iceland was able to secure an emergency loan from Russia. In the United States, 15 banks failed in 2008, while several others were rescued through government intervention or acquisitions by other banks. On October 11, 2008, the head of the International Monetary Fund (IMF) warned that the world financial system was teetering on the "brink of systemic meltdown".



The economic crisis caused countries to temporarily close their markets.



On October 8, the Indonesian stock market halted trading after a 10% one day drop. Russia, Ukraine, and Thailand also temporarily suspended trading. Mexico and Brazil, Latin America's biggest economies, acted to prop up falling currencies.



The Times of London reported that "the meltdown was being dubbed the Crash of 2008 and older traders were comparing it with Black Monday in 1987. The fall this week of 21 percent was not as bad as the 28.3 percent fall 21 years ago. But some traders were saying it was worse. “At least then it was a short, sharp, shock on one day. This has been relentless all week.”. Business Week also referred to the crisis as a "stock market crash" or the "Panic of 2008."



The Black Week: Beginning October 6th and lasting all week the Dow Jones Industrial Average closed lower 5 out of 5 sessions. Volume levels were also record breaking. The Dow Jones industrial average fell over 1,874 points, or 18%, in its worst weekly decline ever on both a point and percentage basis. The S&P 500 fell more than 20%. The week also set 3 top ten NYSE Group Volume Records with October 8th at #5, October 9th at #10 & October 10th at #1



It has been noted that recent daily stock market drops are overall nowhere near the severity experienced during the last stock market crash in 1987. Others have suggested that the media is manipulating and over-inflating stock market drops and calling them "crashes" in order to create the perception of a great depression.



On October 24, many of the world's stock exchanges experienced the worst declines in their history, with drops of around 10% in most indices. In the US, the Dow Jones industrial average fell 3.6%, not falling as much as other markets. Instead, both the US Dollar and Japanese Yen soared against other major currencies, particularly the British Pound and Canadian Dollar, as world investors sought safe havens. Later that day, the deputy governor of the Bank of England, Charles Bean, suggested that "This is a once in a lifetime crisis, and possibly the largest financial crisis of its kind in human history."





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Answer 6

Main problem: The subprime mortgage crisis.



Cause of this problem: Low interest rates combined with bad risk management of banks and rating agencies, in particular their risk assessment of subprime mortgages and the following high exposure in this assets.



Possible ways to fix the problem: The governments can try to reestablish the trust in the economy. But there will be a global recession, until the restructuring of the world economy will be over.

Answer 7

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Answer 8

If you are a natural person you should try cognitive behavioral therapy. It was the only thing that has helped me with my horrible health anxiety. Read here https://tr.im/KoaCq



Your thinking determines your quality of life. Your thinking is what causes you these feelings:



Anxious, fearful, stressed or depressed

Constantly worried, or angry about something that is happening in your life

Struggling to overcome obsessive and negative thoughts.



If you change your thinking, you will change your life. This is the basic idea behind CBT for anxiety. The Cognitive part is where you learn nee methods and ways to change your same old habits and thinking patterns. If you keep thinking and expecting the worst – You will continue to suffer.

Answer 9

If you are asking this as school work, the real answer is that no one really knows and your credit will depend on how well you defend your answer.



Include:

1.The price of oil killed commercial activity by making everything too expensive. A lot of this bubble was caused by speculation by speculators in the futures market, but legitimate demand caused by boom times was also a cause of the high price of oil. China and other emerging market countries (the so-called Bric countries: Brazil, Russia, India, China) were creating a huge demand for commodites



2. Banks and other lending institutions, primarily in the US, floated phony loans based on false property value statements and mortgage holders who overstated their ability to pay when filing loan applications. These mortgages were bought up by foreign and domestic institutions that suddenly found themselves holding worthless or near worthless paper. People took on mortgages because they thought the price of property would continue to rise and they could renegotiate their loans for a lower and more affordable interest rated based on the future price appreciation. (This works, but only if property values continue to rise. If they collapse, the mortgagee "has a problem."



3.As a corollary to "2" above, the collapse of the CDS market. (Credit default swaps.) These are like insurance polices that are bought and sold between parties but unlike traditional insurace, this market is unregulated, and a lot of really bad swaps were being traded. The market was supposed to act like insurace that would make sure companies were capable of bonds would make good on interest payments. Thus a whole lot of people/companies thought they were buying interest rate vehicles that were backed by insurance--cds--that in fact were backed by nothing. A real insurace company has to set aside enough money to make possible claims, but in the case of the CDS's, money was NOT set aside. Lack of regulation and oversight was an aspect of this.



4. Hedge funds were heavily involved with everything mentioned above. Hedge funds are designed to handle money for high net worth people and instituions who can afford to take on more risk and thus they don't have the protections built into traditional mutual funds. Hedge funds can be heavily involved in both long and short positions and very risky ones at that. They can be trend following; that is, when a market such as a currency or commodity market is trending one way, they merely jump in and capitalize on the trend. They tend to follow algorhythms--that is, computerized models that indicate market direction. But when markets suddenly turn, a bunch of funds all try to liquidate at the same time and chaos is created as there are no bids for their underlying securities and markets go into a freefall.



5. As I write this, the markets are still falling, although it appears at least a temperary bottom has POSSIBLY formed in the US stock market. Why still falling? Because of the great uncertainly in the markets. No one knows how deep the world recession will be. And no one knows whether the talked about bailouts, such as that being discussed to save the Detroit auto companies, will merely result in money being tossed down a hole. Friday's unemployment statistic seems to indicate the recession is deepening. All the bailouts may result in a huge loss of the dollar's value in time, and if the bailouts have no accountability, they may do nothing to remedy the underlying problems. (General Motors has been sick for decades--it was THIS YEAR that they finally realized the gas-guzzling tank called the Hummer was NOT the right car for the contemperary driver-- and no way will a bailout save that company. Why do you think I drive a Toyota? American car companies only make money on overpriced bohemeths, they do not make money on small green cars such as the Prius. American companies LOVE heavy metal.)



The Solution.

Markets rise and fall. Bull and bear markets happen. The market will find a bottom of its own accord. It will not be a government solution that will help the markets bottom. I've lived through many bull/bear cycles. (I was born in the1940's.) This too shall pass.

Answer 10

The credit markets.

Answer 11

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Answer 12

The subprime mortgage defaults. Since it is now almost impossible to borrow money, subprime or otherwise, the problem no longer exists.

Answer 13

what bank mortgage co held most R E mortgages?in 2008

Answer 14

Bankers giving to much money out.

Answer 15

government intervention and corruption and they continue under new PRESIDENT ELECT B.O.

Answer 16

http://www.johnkerryforsenate.com/blog/entry/sen_kerry_discusses_the_current_economic_crisis_with_ma_students_and_voters/

Answer 17

thanks for the answers EVERYONE xx