The Reasons Surrounding the Global Financial Crises - Essay Example

Client’s 15 September The Great Depression which occurred in 1930 was triggered off by the sharp and unprecedented decline in the American stock exchange, the Americans wrapped themselves up around Hoover blankets they had no jobs and the unemployment rate went completely out of control. The recent economic meltdown gave rise to a plethora of economic problems; it was triggered off by the subprime crisis. This paper will shed more light upon the subprime crisis. Barrack Obama had to issue a bailout package to save the economy of America, earlier the credit rating of America was triple A but after recession it became double A which means America is less likely to pay its debt than earlier.

Such news often sends panic waves across the world. The financial crisis triggered off because of the subprime crisis, subprime refers to excessive borrowing and the inability to pay back the debt. “Several times recently, Treasury Secretary Paulson (and many others) have claimed that the "root cause" of the current financial crisis is "the housing correction." (Root Cause of the Financial Crisis) The people in the US took loans from banks and other major financial institutions and invested that money into the housing sector but the prices of their houses declined sharply and they were unable to pay their loans back.

Institutions like Lehmann Brothers and others went bust because they could not recover their loans and the ever increasing debt affected them immensely. “The financial slide proceeded unabated, leading to an 800 point decline of the Dow Jones in less than a week. The Worlds stock markets are interconnected "around the clock" through instant computer link-up. Volatile trading on Wall Street immediately "spills over" into the European and Asian stock markets thereby rapidly permeating the entire financial system.

” (Global Financial Crisis) Dow Jones is the name of the American Stock market, the stocks of major financial institutions declined very sharply in the year 2008 because of their inability to recover their debt. The same also affected several other stock exchanges across the globe, the Sensex in India also declined very sharply and the other exchanges also had to bear the brunt. “Financial institutions weren’t managing risk correctly. Sure, they had “Risk Management” departments. But they failed to adequately judge or protect against certain risks.

This failure was magnified when institutions borrowed up to thirty-times their net worth.” (The Real Causes of the Financial Crisis) To conclude it is very fair to say that the subprime crisis triggered the recent recession, major financial institutions also played a key role in the melee. There was hardly any equity left with the major financial institutions, they encouraged people to take loans and it became very difficult for the people to pay it back. They should never have allowed the Americans to do so; the recent crisis could have been averted had the major financial institutions not been so adventurous and managed risk better.

Works Cited Global Financial Crisis. Bloody Monday. n.p., Web. 15 September. Root Cause of the Financial Crisis. Living Large on a Small Budget. n.p., Web. 15 September. 2011< http://www.wisebread.com/root-cause-of-the-financial-crisis> The Real Causes of the Financial Crisis. Future Blind. n.p., Web. 15 September.