The 2007-2009 Financial Crisis - Essay Example

The study by the international monetary fund (IMF) indicated that macroeconomic policies, balance sheet fragilities, and financial boom were some of other greater contributors to the crisis. The macroeconomic causes of the financial crisis were in terms of low inflation and low rates because the previous years were characterized by high degree of macroeconomic stability which was seen as unusual (Kolb, 2010). This was as a result of the opening of communist countries to world trade which leads to low labor cost to the world economy.

The role of credit rating agencies in the 2007-2009 financial crisis was their failure to fully evaluate and understand the risks of introduced complex products. This is because the credit rating agencies role was to serve as gatekeepers in the global credit market. Their monitoring and issuance of debts and other securities issued by governments cooperate they were to exercise influence over access to the capital market and terms of pricing on which borrowers receive credit (Hemraj, 2015). There were contributions by government policies which lowered credit control where government policy was focused on home ownership.

This led to increase in sub-prime mortgage lending which turned to be the root of crisis later. There were education and implementation of programs to encourage home ownership by low-income and minority citizens and there was an encouragement by real estate and mortgage institutions to increase rates of minorities’ homeownership.