Definition of financial crisis?

I found that a financial crisis refers to situations in which some financial institutions or assets suddenly lose a large part of their value.


Can anyone enlighten me on whether it is correct or not?|||Tough question.


Separate the recession from the financial crisis and you will be on the right track. The existence of both will exasperate the other ,however a recession need not cause a financial crisis nor does a financial crisis necessarily cause a recession. My answer to your first question is that we have had instances of financial crisis in America where asets lose value and cause banks to backfill (securities related to oil caused many a bank failure in the early 1980's and the insolvency of money center banks at that time). I heard a good explanation the other day, The tech bubble was a bubble but the current financial crisis is a sinkhole caused by asset values decreasing. In that vein you need to think of assets including mortgages that became illiquid (not because the real estate went down in value) and lost value. The mortage holder may still be paying but fear in the market caused the mortage securities to become illiquid and if you cannot sell something in the financial markets in a few moments it is illiquid.


My answer to your second question slow growth and unemployment is part of the recession and the recession is being exasperated by the financial crisis and at the same time the financial crisis is exasperated by the existence of a recession. As the financial crisis abates we will still be left with the recession (slow growth and higher unemployment), but the remedy of the recession will be less hindered by the existence of the financial crisis.


I tried to be simplistic because you can write a book about this subject and this is my opinion and there may be many that diverge from my opinion (they would be wrong however).