Major causes of the 2008 stock market crash Essay

Major causes of the 2008 stock market crash - Essay Example Even though in numbers this was not as bad as the 22.6 percent loss that had been experienced on Black Monday in 1987, the opinion of the analysts was that this was worse since the losses were felt for the whole week and they did not come from a one-off down day. This was not the end of the experiencing of losses as in the week that started on 6 October; the Dow Jones had no other choice but to close down 5/5 trading sessions and in the process losing a further 18 percent in the same week. Later on, on 24 October the stock exchange indexes all over the globe experienced a drop of ten percent in one day. The prices of oil affected commercial activities in the United States by making things expensive and a lot of this was as a result of the speculation by the analysts in the future markets, but the demands that were legitimate resulted in the boom times and consequently the prices of oil progressively increased. The countries that have emerging markets such as China, Brazil, India as well as Russia created very huge demands for many commodities. The key factor that led to the stock markets crashing in 2008 was the subprime mortgage crisis that was being experienced in the United States since the companies were lending to people with who had bad credit ratings that would result in the people not being able to pay the loans adequately (Farmer 154). The banks in the United States were exposed to these loans, which led to their subsequent collapse since they were lending the money that they themselves had in their own banks. This greatly affected the debt to equity ratio of these banks and many of them ended up needing the help of the government to remain afloat. When many of the shareholders realized that their banks were at risk, they did not want their money invested in the shares of those banks and decided to sell the shares that they had causing a snowball effect at the stock market and this was the