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The Causes of the Recent Financial Crisis in Britain - Research Paper Example

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The author of the current research paper "The Causes of the Recent Financial Crisis in Britain" primarily states that a financial crisis is a situation which may occur when assets and financial institutions suddenly lose a lot of their value…
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The Causes of the Recent Financial Crisis in Britain
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Download file to see previous pages According to leading economists in the world, the recent financial crisis, which started in 2007 and gathered intensity in 2008, has been the worst since the Great Depression in the 1930s. The financial crisis led to the failure of main businesses, reduction in consumer wealth approximated to be worth trillions of US dollars and a decline in economic activity. There are several causes that have been proposed to have caused the financial crisis with experts assigning each cause with a weight.
The proximate cause of the financial crisis points to the mortgage sector in the United States of America. Fundamentally, however, the crisis could be attributed to the persistence of huge global imbalances which were due to the long periods of global inequality which had resulted from lengthy sessions of extremely loose monetary policy occurring in the major advanced world economies in the beginning of the 2000-2009 decade (Mohan, 2007; Taylor, 2008).
Global imbalances have been evident through the extensive rise in a deficit of the current account of the U.S. reflected by the significant surplus in Asia, in particular, China and countries exporting oil like Russia and the Middle East (Lane, 2009). These discrepancies in the current account can be viewed as the results from the relative inflexibility of China. The global macroeconomic discrepancies were, therefore, what caused the financial crisis (Portes, 2009).
The massive financial market flaws that were taking place across the globe interacted with the global imbalances to generate the precise features of the crisis (Portes, 2009). The housing bubble that collapsed had peaked in the U.S. in 2006 and caused the value of securities, which are attached to the pricing of real estate, to fall leading to damages in the global financial institutions.
The global stock markets were further impacted by the damaged investor confidence, reduction in credit availability and the questionable bank solvency. ...Download file to see next pagesRead More
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