A Guide to the Financial Crisis in the UK
A financial crisis such as the one that occurred in the mid 2000’s resulted in a financial crisis UK, recession and depression in the country’s economy, in businesses and in society in general. This was, and still is, seen as a catastrophic event with the fallout continuing today in many modern European countries like Greece, Spain and Portugal. There were many factors that contributed to the so-called credit crunch, not least the instability of the financial markets, which caused the flow of money to come to a stop – thereby restricting all forms of credit and new payday loans. Other factors like cheap credit that had spiralled out of control and risky mortgages, which had become commonplace between the years 2000 and 2007, helped to take the UK to the brink of financial ruin in the autumn of 2008.
History of the Financial Crisis UK
The 2008 depression has become known as the ‘great depression‘. But, prior to this event the biggest depression had happened in the 1930’s when stocks and shares all over the world fell and many people lost their homes and businesses. This caused mass unemployment and poverty on a great scale.
The financial depression of the 1930’s was exited after the world went to war and following a period of austerity during the 1940’s and 1950’s the economy of the UK and other countries began to grow. Full employment ensued in the 1960’s and there was a rise in living standards for everyone. It began to be unthinkable that this kind of recession/depression could happen again on a global scale. However, the financial crisis UK in 2007/2008 proved everyone, from highly regarded economists and government ministers right down to the man on the street, wrong. So, how did it start? Furthermore, who is to blame and what lessons have been learned along the way? We will attempt to answer these questions in the next series of articles.
The Start of the Crisis in the US
It has often been said that when the US sneezes the rest of the world catches a cold. Following this train of thought, then it would be very easy to lay the whole blame for the global financial crisis at the feet of the Americans but this would be both inaccurate and unhelpful. The root causes of the global crash that had such a devastating effect on the UK, the European community and the rest of the world are far more complicated and complex. Factors such as high oil prices, increased costs for food and a boom in spending should also be taken into account when we look at what went wrong in the financial crisis UK.
An increase in the availability of quick credit, rocketing house prices, deregulation of banking rules and above all the lust for high profits are all factors that led to the biggest financial crash ever. And, there is no doubt that the loosening of banking regulations was one of the major causes of the crash. But, this along with the other factors mentioned happened in the UK and Europe as well as the US.
Causes of Financial Crisis UK
Prior to the period of deregulation, banks were basically organised in two ways. Firstly you have retail banks that you see on the High Street. In the UK these were the big four; Barclays, Lloyds, National Westminster and HSBC (formerly the Midland Bank). Secondly, there is investment banks operating in the UK like JP Morgan and Deutsche Bank were a different kind of financial institution that raised money for businesses, traded on the money markets and were used for arranging mergers and acquisitions. There was a definitive line between these two forms of banking and the many building societies that flourished in the UK were firmly in the former camp.
In the UK there were a lot of reputable building societies that had evolved over many years as a means of providing mortgages for ordinary people. In fact, these were the first port of call for ordinary people who wanted to buy a home of their own. At this point in time banks provided current accounts, business accounts and overdrafts. Furthermore, banks were seen as the lender for business investment and building societies catered for personal mortgages for a home. Hence, you used your cheque book to pay bills.
But, why does all this affect us? And, how did all this change? Read on!