Financial Crisis

Financial Dictionary -> General Finance -> Financial Crisis

Financial crisis is a term commonly used when an individual finds themselves in an unsustainable financial lifestyle, whereby their debt far outweighs their income and therefore they stand to lose assets, such as homes. This can occur through poor personal management of money, unforeseen circumstances or on a more global basis through economic crisis when the whole economy is in a slump.

In a much broader sense (although or the more relevant in 2008 as of writing) financial crisis can also refer to the entire country and/or world as opposed to on a personal level. In this case it is defined as a situation where confidence is lost in a country or several country's currency, other financial assets or economy as a whole, causing international investors to withdraw their investments and funds from the country, thus bringing the confidence level down even further and causing major economic problems which have a ripple affect all around the world.

This can also be a crash in the stock market, banking panics that result in mass withdrawals of money making the system collapse, general recession and basically anything that puts stress on mass finances.

In 1931 there was a huge banking run in the United States, which saw the majority of people withdraw their balances from their accounts, causing a massive crash. Conspiracy theorists have their views on why this happened, but it all started with speculation and mass panic. This is echoed with the stock market and crashes associated with the mass sale of stocks as people try to get out before the impending doom; however it is this panic that starts it off.

The 2008 subprime mortgage crash is also an example of a financial crisis, which saw a big recession in the real estate market.
On a national and global scale financial crisis ebbs and flows and things usually level out with government policy. The economy mathematically has to go up and down. On a personal level it can only be up to the individual.