This paper “Cause of the Financial Crisis: Corporate Governance Failure “ will attempt to deal with discussing on the principal cause behind the financial crisis and will present a brief description of Financial Crisis of 2008…
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The emergence of international trade necessitates the role of financial institution at global platform and now, the world economies engaged in international trade relation have the opportunity of share their risks with other economies. However, this can also be viewed as major disadvantage of international trade as crisis in the major economies soon spread over other related economies. This can be explained thoroughly using the latest evidence of the global Financial Crisis of 2008 (Mullerat, p.135-137). The Financial Crisis of 2008 was emerged in Western first world countries like United States, Canada, the European countries United Kingdom, Germany, Span, France etc and the influence of crisis in these economies soon impacted the entire international market directly as well as indirectly. There is a debate over the origin of this financial crisis and major reason behind this crisis.
This paper will attempt to deal with the same by discussing on the principal cause behind the financial crisis. However, at first a brief description of Financial Crisis of 2008 and its background will be presented to understand its nature. Next, the root cause of the financial crisis will be explained followed by role of the agents of financial crisis will be explained in intensifying the crisis. Finally, the overall discussion will be summed up in the conclusion followed by a set of plausible recommendation. 2. Background of Financial Crisis of 2007-2008 A recession period can be declared by considering the depressing economic growth, reducing the market demand as well as GDP, industrial production, reducing flow of resources etc. As per the economic theory of business cycle, there are four cyclic phases of an economy i.e. slump, recession, recovery and boom and these phases including the recession are quite normal for any economy (Hubbard, p.310). However, in case of financial crisis of 2008, many scholars have defined it as unnatural crisis and did not belong to the normal business cycle as they believe due to unconventional activities of financial market this crisis was forced to impact entire world economy. The financial turmoil was first detected in the first world countries like USA, and other developed countries of Europe and these countries were the major victim of this crisis. Prior to this financial crisis of 2007-2008, the entire Western financial market was enjoying the boom period and many have identified that this global downturn was an effect of constant negligence. When it crossed the limit, a number of multinational corporate giant collapsed and its immediate effect fell on entire financial market. This global downturn is termed as the financial crisis as this recession was mainly led by financial market that caused financial crunch during 2007-2008. This crisis also termed as the sub-prime mortgage crisis as the risks due to sub-prime mortgage is the main technical reason for this crisis. “
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