The COVID-19 Slowdown and the Global Financial Meltdown of 2008

Coronavirus virus, commonly known as COVID-19, has caused the world's greatest fear since the 2008 global financial crisis. With its rapid transmission rate, the World Health Organization announced that it had surpassed the epidemic situation to a pandemic. The virus symptoms include flu-like symptoms such as coughing, fever that affect the respiratory system, but they are more lethal than other respiratory diseases (Lusting &Mariscal, 2020). After COVID-19 was detected, it has been reported in all countries globally, affecting millions of people and causing hundreds of thousands of deaths in countries such as South Korea, China, India, Italy, the US, and more than 100 countries. The global nature of the measures placed to affect the productivity of the sectors and corporations in the global value-added chains and the specific businesses. Most economists wonder whether the economic fall will be as it was experienced during the great financial crisis. The unemployment rates, firms that have dissolved into bankruptcy are some of the governments' problems. Implementation of the lockdown by most countries has slowed down consumption making the financial and economic situation more unknown than the time of the global financial crisis that affected only the financial condition of the nations.

The triggers of the economic meltdown of 2008

The drop in demand in the United States at the end of 2006 and the beginning of 2007 was the primary cause of the crisis (Blanchard, 2019). The low prices first lead to substandard mortgage crises where essential mortgages were given to illiterate borrowers at an accommodating rate. Refinancing the mortgages became more challenging as the prices began to decline. Accommodating rate mortgages were reset to higher rates, creating a wave of repayment problems for most standard borrowers, followed by foreclosures (Pop, 2009). A result of this was the value of the residential properties and mortgages that were issued declined further. As time progressed, the decline of residential properties was followed by similar residential prices worldwide.

The crisis had its roots at high-level leverage for the financial institutions developed by increasing liquidity available for borrowing at a meager rate. The resources for lending were not available from banks and hedge funds which entered the market where people could borrow money at a lower price than banks. Private equity funds, pension funds, and mutual funds entered the market to bring a variety to other portfolios, increasing their demand and the insurance companies (Pop, 2009). Investment banks also joined the credit market as the SEC allowed the banks to benefit from the regulations to manage their risks voluntarily.

The financial crisis in the US

The first sign of distress was present since February 2007 when the HBSC announced that it had encountered losses connected to the US Substandard mortgage. Later within the month, Federal Home Loan Mortgage Corporation declared that it would not buy the riskiest substandard mortgages and mortgage-related securities (Pop, 2009). According to Guillen (2009), the chairman of the treasury department, Ben Bernanke, said "the growing number of mortgage defaults will not seriously harm the US economy" in May of 2017.

When several business people lost faith in the value of mortgage-backed securities and collateralized debt obligations in July 2017, the valuation of commercial banking core responsibilities by subprime mortgages plummeted. Since 2004, financial products have grown in popularity to refinancing assets and spreading risk among many investors in a crisis. (Pop, 2009). They acted like a catalyst in the financial system due to the number of web connections...

…securities continues; this will have a beneficial effect on the equilibrium interest rate to the degree that the stakes are deemed secure. Since alternative investments have a convenient yield, the product is lower, and thus the equilibrium accurate exchange cost is increased (Goy & Van den End, 2020). The large purchasing of securities is intended to restore smooth market credit, allowing credit to keep flowing. It leads to a significant increase in business function. (Cheng et al., 2021). The profits from the sale of the bonds can be re-invested, and the lender can use the capital to purchase properties such as stocks or government bonds. It has the potential to bring the economy back into balance. Companies and enterprises are aided by the nation, which lends them capital. The federal government loans money to businesses by purchasing new bond disbursements and term investments to them. For at least the first six months, companies could delay interest and principal payments to pay workers and suppliers.

Conclusion

The 2008 Financial crisis lead to the worst global recession with the collapse of the Lehman bank, which leads to the meltdown of the worldwide economy. The economic turbulence that the COVID-19 causes have left many financial systems in crisis. Many financial systems depend on their central banks to avoid large-scale liquidation by offering direct financing to larger firms and small-medium enterprises to keep their jobs and businesses running. The governments have been forced to deal with critical issues like the country's economy and health care systems, and financial systems. The governments implement taxation proposals, tax policies and using modern technology as part of the nation's effort to rebuild economic life. Governments are looking for ways to restart their economy without adding any strain to it as most countries are still recovering from the 2008-2009 global financial crisis.

References

Blanchard,…