The Global Financial Crisis of 2008-2009 - Essay Example

Running Head: THE GLOBAL FINANCIAL CRISIS OF 2008-2009 The global financial crisis of 2008-2009 Student Name Institution Date The global financial crisis of 2008-2009 Introduction Finacial crisis is a situation in which supply of money is outpaced by its demand. This means that liquidity is quickly evaporated because all the available money is withdrawn from the banks and not enough in the circulation. Thus the banks experiences shortage of finances to support their operations hence they opt to sell other investments to make up for the shortfall. These crisis have negative effects across the world and is a threat to the longterm objectives of some projects especially those that requires financial support like the Millennium Development Goals. Most of the financial markets have collapsed leading to decline in investments and lending opportunities are reduced and the exports are falling as their demands decreases. The developing nations are the most affected because of experiencing high prices of the basic needs like food and energy hence are not in a position to prevent their financial institutions like banks from running bankrupt (Books, LLC, 2010). The study below discusses how the global financial crisis of 2008-2009 has been blamed on corporate greed, and inadequate regulation and oversight in the United States of America by analysing some of its negative effects on the financial projects. How corporate greed contributed to Global financial crisis of 2008-2009 The financial crisis experienced in 2008-2009 can be considered as the worst financial downturn since the began of the great depression. According to the United Nations conference on the World and Economic crisis and its effects on the development was attended by various world leaders to evaluate the global economic crisis. There are many factors which are accountable for the occurence of the finacial crisis (Nanto, 2010). During the 2008-2009 finacial crisis, the economic status of the United States of America was collapsing because the liquidity is quickly evaporated as all the available money is withdrawn from the banks and not enough in the circulation. There was little money in circulation hence people were withdrawing all what they had saved to at least have enough to meet their needs or reduce the effects the situation was likely to cause.These impacts included increase in the prices of the commodities or decline in the value of currency. In America the collapsing economy is based on barn building and on individual or corporate self interest because everyone was struggling for individual benefit without minding what it would cost the others or the economy of the whole area. The owners of the private organizations like companies and other businesses incraesed the prices of their commodities in the name of making more profits hence increase their income or revenues. This is to the disadvantages of the consumers because they are charged more than they can afford hence they end up spending all what they have on enriching the producers (Barros,2010). Sharma, (2010) argues that since the occurence of the historical economic crisis of 2008-2009, there has been an increase in the corporate greed which is portrayed by the scandalous division between the salaries of the individual memebers of general mamagement of the organization. The CEO’s and workers in most of the American companies and other privitized organizations have left the real market to wolves. The workers in the highest job ranks are paid more compared to those of the others because of their personal interests. The Banks have been persued reckless policies which ensures that they benefit only themselves, the individuals rea owned by their credit cards, debts such as loans which they are charged high interest rates. All the concern of the environment have been sacrificed for the sake of benefiting the individuals and the private owned organizations (Nanto, 2010). The International trade agreements which benefits the United States have led to increase in poverty in countries forcing people to move to the lower parts. The sources of corporate greed is mostly found in most of the unlikely places, for example in United States, whereby almost all the departments which oversees corporations have representatives whom they refer to as lobbyists operating to protect the interests of both theirs and and those of the other corporations. Although more efforts have been intiated to cater for the interests of the public, more efforts are still required in order to overcome and regulate the individual greeds and those of the private sectors that the effects of the economic crisi especially in the victorious atates like the united states can be reduced. The late 2000s great recession was a severe economic recession which began in the United states in December 2007and continued up to June 2009. It quickly spread to the other nations of the industrialized world causing a pronounced deceleration of economic activities. Although in July 2009, it was announced that a n incraesing number of economists believed that the recession would may have ended, in United statesthe requisite two consequitive quarters of growth in the GDP did not happen until the end of 2009. The financial crisis were linked to reckless lending practices by financial institutions encouraged by the government and the incraesing trend of securitization of real estate mortagages in the United states (Sheng, 2009). The economy of the United States is based on credit. Wise utilization of credit can lead to recognizable expansion of commercial businesses and creation of many job opportunities. This has positive impacts in the liquidity of the currency because people will have more chances of increasing their income hence be able to meet their needs. However, if credit is not well checked or managed can lead to financial crisis whereby the supply of currencies will be lesser than the demands of people resulting to negative impacts like rapid increase in the prices of commodities. This is what happened in United States during the 2008-2009 financial crisis, the condition resulted to corporate greed because of increase in individual interest those of the public. The value of commodities like house rent increased with time resulting to the increase in their prices although the liquidity of currencies continued reducing (Pierce, 2009). This was highly contributed by increase in mortgage brokers since they were the ones issuing the housing loans. So many people were reached and convinced to take loans which were approved by the brokers. These loans could be repackaged and resold together with the other loans to make more money; this thus attracted more people with the intention of making more profit and paying them back at cheaper prices. How inadequate regulation resulted to global financial crisis of 2008-2009 The inadequate regulation is considered as another cause of the great financial crisis in United States. Before the recession occurred there were some fix regulations which shad formed a pattern under which all the financial institutions would operate. However, due to the relaxation of the government officials and other bodies associated with the national and international economic status hence poor regulatory measures the regulating pattern was interfered with by the other internal and external factors which resulted to global liquidity (O'Connor, 2010). The banking services were heavily regulated for a lengthy period of time but currently there is total freedom which has led people to increase their reserves especially for the foreign exchange like oil. This is as a result of unregulated trade activities hence a lot of and excess bank savings especially in nations like china. The other is the inadequate provision of credit facilities because of their reduced charges on interests, for example, many of the related corporations started offering loans like mortgage leading to stiff competition in the market. To survive the stiff competition other related corporations reduced the interest charged hence winning most of the consumers. Although the prices of commodities increased like the house rents, people continued buying more houses leading to increase in mortgage crisis as people struggle for more chances and as banks offer more mortgage loans as driven by the interests of the local consumers (East Asia Foundation, 2009). Global credit write downs were estimated at $2.8 trillion in the October 2009 Global Financial Stability Report but the actual recorded figure is $ 2.3 trillion. Despite the ongoing struggle to recover this condition, the expenses on the crisis are still high because of such factors as: high prices of commodities, fiscal expansion of G 20 countries in terms of their GDP, continuing levels of unemployment, average debt of the ratio of GDP for the advanced economies is still increasing and also the extended volatility in the rate of exchanging currencies and the fragile nature of leading capital markets (Wessel, 2010). How financial oversight contributed to the global financial crisis of 2008-2009 According to Teeple & McBride, (2010), the collapsing of the sub-prime market of mortgage in United States and the reversion of the housing bubble led to financial crisis in the industrialized economies. This has surfaced other issues of economy across the whole world causing negative effects in the financial institutions. With the intention of boosting the economic status of the United States, the government undertook a plan which would help in deregulating the financial institution. This policy ended up in less oversight in some of the activities of these financial institutions and the information was not well relied. The institutions thus decided to be on their own assuming all the regulations put in place by the government. The stiff competition in the financial institutions led to others like banks holding information to themselves so as to make their services unique. This led to increment in the shadow banking systems especially in the non-depository banks offering such services as credit facilities (Congleton, 2009). These banks depended on their investors for financial support since they were non-depository so their status worsened between 2007 and 2008 when these investors stopped providing the necessary support due to the fear of collapsing after it was overlooked by the policy makers. For guarantee of success these financial entities would have been put under the category of other financial facilities like banks hence operate under similar regulations but excluding them from the brackets enhanced the occurrence of the global financial crisis. The financial institutions acquired large debts because they continued to issue more loans to their customers but did not have any revenue to cover for the bad debts. These losses slowed down the abilities of these institutions to lead because some of them went bankrupt. The effects of this condition was also felt by other institutions including the central banks as they struggled to restore some of these services offered to the public (Boatright, 2010). The condition worsened forcing the then president of America George Bush to chip in some $ 700 into the financial system which would be used to save some of the financial situations especially in the financial institutions. The house of the representative rejected this move because they thought that it would only benefit the status of the offenders. The other victorious nations such as Britain began nationalizing some of the collapsing banks in efforts of restoring their performance and the economic status of the area. The United States was reluctant to embrace the move because they were against the free market. This oversight affected the economic status of United States because the losses in the financial institutions which affected the other parts of the nation (Tapiero, 2010). Other causes Other causes of the crisis included Easy credit conditions in which low interest rates were charged on the loans that were offered by the financial institutions to the public. This led the central banking system in the United States to reduce its rates of fund from 6.5 percent to 1.0 percent. The value of the currencies also reduced with the rapid increase in the prices of the commodities thus a large amount of money could be used to buy less valued commodity (Nanto, 2010). Conclusion The financial crisis of 2008-2009 can be considered as the worst because of the effects that it had. These crisis were generated by the a shortfall of liquidity in the banking system of United States leading to collapsing of most of the large financial institutions downturns in stock markets around the world and the bailout of banks by national governments. The main causes of these crises includes: corporate greed, and inadequate regulation and oversight in the United States of America. References Barros B. (2010). Hernando de Soto and Property in a Market Economy Law, property and society. Vol. 23 (4). 175-179. Nanto, D. (2010). 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