How capital markets led to the new economy bubble and the banking Essay

How capital markets led to the new economy bubble and the banking crisis - Essay Example This research will begin with the statement that the occurrence of the global crisis in 2008 started with developed countries particularly in the United States of America, and its impact spread rapidly to other parts of the world. The crisis was contributed by the negligence of the financial institutions that issued insecure loans to the investors hence making the repayment hard during and after the recession. The decline in the prices of residential houses made it difficult for mortgagees to repay their debt. Consequently, the investors withdrew their wealth from the capital market to repay their loans with other investors lost trust and confidence with financial institutions resulting to the withdrawal of invested wealth from the capital market. Capital market refers to the financial market in which the long-term debt or equity-backed securities are traded. The role of the capital market is to collect resources of the savers and distribute them to the long-term investment opportuni ties, especially in government and companies’ investment saving schemes. This document gives the detail of how the capital market was responsible for the global crisis and its impact on the world economy. The contribution of the capital market to global financial crisis gives and understanding of the financial markets operates and how different financial institutions are interlinked across the globe. During the period between 2000 and 2007 investors generated a lot of wealth and had enough to save in the banks.