What were the causes of the Global Financial Crisis which began in 2008 - Essay Example

Mortgage capital expansion based policy that took upon the local industries such as housing, small to medium scale business activities led to an unprecedented environment and accumulation of artificial bubble. It was early in 2007 when the high risk mortgages saw an unusual trend in the market existence in the form of defaulting initiation to the business activity set the market on negative trends and footings leading on to massive economic strangulation in next year or so. Initial normalcy and relatively lower interest rates were another contributing factor that resulted in the upward pressure on the industry as well as the private lending agencies and entities being forced to increase the rates of interest subject to the external market and negative values by that time towards mid 2008.

Mortgage backed security (M.B.S) was another mechanism and aiding element which lead to the stiffening of the market and overall mood. The second factor that contributed to the global recession was the element of securitization of the mortgages. It has been termed as the contributing factor which led to reduced certainty within the market trends and increased trends of risk. Introduction of concepts and policies such as Corporate loan securitization led to an initial let off to the investors and banking sector businesses that were initially indebted in small scale values, yet the long term impacts would show up in times ahead which did so in the most frightening form in span of less than five years from after 2002-2003.

The fact that the American government had been following a relatively non consistent trend and pattern of loan handling made the picture relatively further murky. The practices such as collateralized loan obligation(C-L-O), was one similar practice of the United States government and banking policies which lead to increased debt values. The values initially were limited to less than 25 billion dollars, in less than five