Critical Assessment of Global Crisis - Essay Example

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In past years, the whole world has experienced a wide range of crisis from the financial crisis, banking crisis to the economy recession. Since 2007, the world has experienced and might continue to experience in next few years a virulent financial crisis to ever been recorded since the Great Depression of 1929. …
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It has been argued that the major basis of the financial crisis was the loose of monetary policy in the early 2000s also known as the “Greenspan put.” Fed and central bank lowered short-run interest rates to rescue financial markets. There are several key dates indicating the phases of the global financial crisis. Originating from the US, initial signs of financial crisis originated from escalating defaults in the subprime market. The subprime market refers to the marketplace for borrowers who have excessive debt experience, high default rates and the borrowers with recorded bankruptcies and who have a history of missed payments. On the summer of May 2007, Moody’s a credit agency reported that it had planned to reduce creditworthiness assessment of 62 tranches of mortgaged-based securities (MBS), that is, the debt obligations representing a claim on income obtained from mortgage loans. Between June and July of the same year, more tranches were downgraded. In August 2007, French Bank BNP halted three of its funds on a temporary basis because it was unable to assess the value of subprime mortgage securitizations. In short, financial institutions across the world begin to the reassessing the value of the mortgage recognized against their lending. This led to loss of trust and the confidence in these mortgages to tremble. Most institution cast doubts on securitized assets evaluation has they begin to hoard huge amounts of cash assets so as to cover any arising losses originating from their portfolios. The securitization market went under stress leading to a sharp increase in interest rates. Read More
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