A financial crisis is defined as any situation in which one or more important financial assets – such as stocks, real estate, or oil – suddenly (and often unexpectedly) lose a significant amount of their value. Common examples of the financial crisis include the financial market. crashes – either widespread or within certain industries – crash in the housing market and the rush of banks.
The bank robbery occurred when dozens of bankers panicked and demanded to withdraw, at the same time, all their deposits into their bank account.
In the United States, over the past few centuries, financial problems of some kind occur almost every 25-30 years. Recent examples include the 2008 Global Financial Crisis and a dot-com speculation bubble that exploded at the turn of the century.
Understanding Financial Crises
Although different financial disasters vary in their nature and magnitude, there are some common situations that often accompany such problems.
Another is that the financial crisis is often preceded by, accompanied by, or followed by periods of widespread debt. The 2008 Global Financial Crisis was no exception. Much attention has been paid to subprime mortgage lending, which has created a massive mortgage loan that was almost completely destroyed from the beginning to automatically recover.
Subprime mortgage loans are loans to homeowners with very low schools – in short, large loans to people who may be struggling to repay the loan.
According to one study of financial problems, a rapid increase in available credit, followed by a short period of debt consolidation, often provides an early warning of an impending financial crisis. Financial problems are almost always followed by a period of severe debt consolidation when lenders seek to curb their exposure to risk by simply transferring debt to borrowers at high credit rates.
Another truth about financial problems is that although they do not occur very often, they do seem to occur quite often. Over the past century and a half or more, the United States has experienced some financial crisis in almost every 25 to 30 years.
However, the most recent history shows frequent financial problems. The U.S., for example, experienced a massive stock market crash in 1987, the dot-com bubble in the early 2000s, and then the 2008 Global Financial Crisis.
Financial problems are often difficult to predict, and one reason is that the cause may be a small event or a series of events. For example, the dot-com bubble that occurred about 2000-2002, when it was a disaster for many investors in the rapidly growing technology industry, initially involved a small portion of the stock market as a whole.
Despite the failures of many companies, a few dot-com companies, such as Amazon and Google, enjoyed significant growth in the years that followed.
Finally, the financial crisis often leads to the most difficult period of the recession. Total gross domestic product (GDP) usually drops to 50% more during the recession following the financial crisis, compared to the “normal” recession that is not preceded by or due to a crisis.
The Next Financial Crisis?
The world could face another major financial crisis worldwide as a result of the Covid-19 epidemic (if we do not have one). However, it is difficult to see, from the middle of 2020, what the economic consequences of the virus are and the increasing closure of private residences. In part, this is because most lenders are currently tolerant of debt – that is, creditors who fall behind on repaying loans.
Therefore, the actual level of financial stress for many companies and individuals may not have reached their full potential. Many market analysts warn that, so far, we have only seen an article about corporate collapse and personal collapse – that there is probably more to come.
Second, governments are doing everything they can to support the economy. However, while most governments promise to do “anything,” their amazing efforts will not continue indefinitely. Although interest rates are still high, at present, at low levels, there are already signs of lenders in the U.S. who begin to tighten the debt. The worst debt in the not too distant future does not come out of the question.
CFI is the official provider of the Commercial Banking & Credit Analyst (CBCA) ifiketi international certification program, designed to help anyone become a world-class financial analyst. To further improve your work, additional CFI resources below will be helpful:
- Bank Run
- Economic collapse
- Dotcom Bubble
- 2020 Economic Crash
What are Financial Controllers?
Financial management is the processes, policies, and ways in which an organization monitors and manages the way, allocates and uses its financial resources. Financial management is the key to resource management and efficiency in any organization.
The implementation of effective financial management policies should be done after a thorough analysis of existing policies and the company’s future vision. In addition, it is important to ensure that the following four processes are completed before the implementation of financial management in the business
Finding confusing and confusing
Financial budgets, financial reports, profit and loss statements, balance sheets, etc. present a complete performance and/or picture of a business operation. Therefore, when developing financial management policies, it is very important to detect any discrepancies and/or confusion from available data. Helps to identify any gaps in the current management framework and eliminate them.
Financial management is central to resource management, hence, efficiency and profitability of the business. Timely updates of all available data are very important. Additionally, a review of all administrative procedures and policies relating to existing financial management practices is equally important.
Analyze all possible operating conditions
Before developing a financial management plan for an organization, it is important to carefully consider all possible operating conditions. Looking at policies from the perspective of different operating conditions – such as profit, cost, safety, and productivity level or capacity – can provide the information needed.