Events Related to Long Capital Management, and the Housing Crisis - Term Paper Example

Capital management needs to be long-term so that the profits gained by a particular company are noteworthy and massive. Whenever a business drafts strategies for long-term capital investment, these strategies should be centered on getting a risk-free and the most efficient investment venture.

The global housing crisis refers to the peaking prices of housing that started around the latter part of 2006 and continues to manifest even presently. In 2008, the highest ever housing prices were recorded. Perhaps this was because of the global financial crisis that the world was undergoing during this time. The US is one of the countries worst affected by this housing crisis. The housing crisis is so serious because not only does it affect individuals, but it also affects the nation’s mortgage markets. In the US, this crisis has been called the bursting housing bubble.

The European Sovereign debt Crisis on the other hand refers to the current financial crisis in Europe whereby some countries’ financial institutions have faced collapse. Moreover, these countries have very high debts coupled with abnormally high bond yields that are spread in government securities. This crisis also began in 2008 due to the global economic meltdown. It was first reported in Iceland whereby, the banking system in this country collapsed. After this, the crisis later spread to countries like Portugal, Ireland, and Greece. The effect of this crisis is that it has dented the confidence of the affected countries’ businesses, and the economies as a whole.

These three concepts are similar in some aspects, but they are also different. For one, the three components resulted from the global financial meltdown of 2008. The zenith of the global financial crisis was in 2008, having begun in late 2006. By 2008, the global financial crisis spread to many sectors. The first of these was the banking crisis in Europe which led to these economies getting indebted and suffering a dent in confidence in terms of the markets’ performance.  This led to the Sovereign crisis in these countries. Countries like Iceland and Greece continue to suffer from this crisis as they have not been able to recover well. Next came the housing crisis of 2007, and it continues to affect the great economies in the world. Due to the financial crisis that peaked in 2008, housing valuations increased. This continues to affect most aspects of housing ranging from house owners, mortgage markets, real estate, and even retail outlets.

Another similarity between these events is that governments have come up with efforts aimed at ensuring that the crises are averted. Long-term capital investment is a measure that many financial institutions have devised so that they are able to gain enough profits that will transform the economies of these particular nations. When the right strategies are put in place, long-term capital investment is aimed at ensuring that enough profits are garnered. For example, in countries that have experienced the sovereign debt crisis in Europe, it has been noted that most financial institutions in these countries had employed short-term management measures. When the financial crisis hit world markets, these institutions collapsed. From this, these countries changed their approach and they have encouraged most of their institutions to approach a long-term approach.

The housing crisis and the sovereign debt crisis are both similar also in terms of their effect on the economy. These two concepts have both led to inequality in the economy since they strain the affected countries’ financial markets. They are regarded as destructive forces since nations are spending a lot in order to avert the crisis. By so doing, the economy is getting affected. The housing crisis, just like the sovereign debt in Europe has caused inequality in society. The result of inequality is that the functioning of the economy is compromised. It also compromises capitalism and democracy. This is not a good occurrence.

Current Events

As much as the housing crisis is easing, people are still reeling from the effects. This is manifested currently in the form of the mortgage crisis that continues to affect most Americans and people in Europe alike. As a result of this, it is becoming harder to own a home in the present conditions.  Homeowners are also suffering the brunt of the housing crisis due to the high bills. This is forcing them to hike prices, and it is affecting business for them.

The European debt crisis has also eased of late due to the measures put up by most governments and financial institutions. Recent developments in the debt crisis are as followed.

• The borrowing costs of Spain rose to levels not experienced in 2012. This has been an indication that the financial crisis in Europe is still a long way to go
• Stock markets in some European nations have closed sharply in the recent past
• Spain and Italy are two of the most affected countries in terms of the debt crisis. These two have high debt problems as compared to other European nations. For example, Spain has been forced in 2012 to abandon the deficit reductions targets it had earlier set
• Greece, the first country to be affected by the debt crisis has been boosted by a sum of 130 billion dollars, which is to act as a bailout kitty.