The Recent Global Financial Crisis Introduction: The recent global crisis that the world suffered from had started developing for a while before it had its impacts in the middle of the year 2007 and then in 2008 (Obstfeld & Rogoff, 2009, p.1). The crisis affected the entire world with fall in the stock markets, financial institutions being sold out or warped leading to the emergency need for rescue packages from the governments in order to bail out the severely impacted financial firms…
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The current study focuses on a discussion and analysis of the recent global financial crisis and the consequent credit crunch in an international financial perspective, including the events leading up to the crisis, the economic and financial consequences, as well as the government responses and lessons to be learnt. Events Leading to the Incidence of the Global Financial Crisis: The global crisis was initiated in the mortgage lending market in the US, the problem arising with the Federal Home Loan Mortgage Corporation deciding not to pay for mortgages that involved high risks. Secondly, the bankruptcy filed by New Century Financial Corporation that remained a primary lender of mortgages for customers who were riskier in nature. With the occurrence of these incidents, the house prices started dripping down and foreclosures started increasing. With the increases in the risk factors and the fall in asset prices, the financial institutions feared the payments of interests and apprehension of severe losses prevailed. Although Federal Reserve had taken some initiatives in this context to assist the financial firms, however, the fall in prices of the assets could not be held back. Gradually the crisis affected the banking industry in the nation reflected by the bankrupt conditions of Lehman Brothers as well as purchase of Merrill Lynch by the Bank of America in the midst of government not prepared to bail out all banks. The financial markets gradually became highly unstable with severe fall in stock markets (Marshall, 2009, pp.7-8). Some of the primary events leading to the global crisis can be outlined as follows: August 9, 2007- The intimation of liquidity crisis followed by addition of capital by Fed and European Central Bank. March 2008- Bear Stearns was rescued by the Fed. September 8, 2008- Fannie and Freddie were nationalized by the treasury. September 15, 2008- Bankruptcy filed by Lehman Brothers (assets of $600 billion being the largest in the history of the US). September 16, 2008- Fed made bridge loans to the largest insurance company in the world, A.I.G. October 3, 2008- Bailout policy passed out by the government; Treasury was given the authority to spend $700 billion. With all these above mentioned events gradually occurring, the stock prices fell rapidly accompanied by fall in real housing prices by about 30 percent from 2006 to 2008 (Historical Context, n.d.). Economic and Financial Consequences of the Global Recession: The severity of the global recession has had its impacts on the prices of assets, the productions as well as the employment. These effects were not only restricted to the US but spread across the world with differences in the levels of their impacts. The most significant of these has been the impact on the debts and creditworthiness of companies and that the crisis led companies to encounter difficulty in performing exports and earn gains following their settled plans (Reinhart, 2009). Three particular consequences could be realized from the global recession. These included: (i) the rising debt, the household debt in particular; (ii) the possibility of a comeback to an insecurity with respect to international
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This paper examines failures of real estate values and subprime lending; bad quantitative risk models in banks (Basel 2); rating agencies failures; underestimation of aggregate risks; mark-to-market accounting; shadow banking system; off-balance sheet financing; credit default swaps and over-the counter derivatives; moral hazard problem.
Reasons have been analyzed for the failure of the financial markets. They have included faulting banks and investment houses for speculating under high leverage and low collateral, and homeowners defaulting on mortgages. Niinimaki (2007) noted a study that observed financial crises were usually preceded by periods of high defaults in the real estate market.
As a result, lending and investment in reliance on the weak macroeconomic model eventually culminated in a domino effect triggered by the collapse of the US housing bubble; which further raises questions about increased government regulation of the finance industry going forward.
This view is a good one which will more or less be developed in this report. As far as establishing blame for the crisis, it may be perhaps be better to view the crisis as a business cycle because it is bound to occur again in spite of the current concern and efforts to set up corrective measures.
This combination has been a growing problem in the past few decades. The origin of the global financial crisis can also be linked to the bursting of the oil price and housing bubbles, and excessive low interest rates among the key nations in the global economy.
Introduction The global financial crisis started to show its impacts from the middle of the year 2007. Economists consider the global financial crisis to be the worst scenario after the Great Depression of 1930s (Chari, Christiano and Kehoe, 2008, 1). The stock markets feel around the world.
Conclusion 7 Works Cited 9 Marketing strategies to attract buyers in times of financial crisis 1. Introduction The recent global financial crisis has affected all sectors of economy all across the globe. Customers’ needs and preferences were considerably altered during the financial crisis.
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It is expected that 2010 shall witness a global growth of 4 percent up from 0.8 percent witnessed last year with the private sector largely taking over. This is bound to encourage stronger economic growth within the emerging markets and economies.
The author noted that observed financial crises were usually preceded by periods of high defaults in the real estate market. This view has recently been confirmed by an IMF report (2011), that financial crises usually follow "credit or asset price bubbles".