The 2008 Financial Crisis: causes and consequences. Name Institution Date It’s evident that the 2008 global financial crisis came into a sharp focus especially considering the speed and severity it caused. As widely reported its effects were felt across all the industrialized countries alongside other developing and emerging economies…
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As such, the crisis revealed the dire need for improvement in the supervisory practices and proper internal communication. It also indicated the potential benefits of ensuring that strong risk management practices are implemented. There were also notable flaws that existed within the financial system during the peak of the boom. This involved the excessive reliance on the securitization, as well as the placement of investors and regulators faith in opinions of the private rating agencies. It is argued that, the price bubble in assets was majorly fuelled by a dense combination of too much leverage and underestimation of the increased systemic risks The already existing regulatory structures encouraged procyclicality within the lending behavior via the Basel capital requirements.2 Through this, the Basel I contributed to the increased securitization through the assignment of small capital charges to assets that were securitized. This in effect, propelled the banks to move assets toward the off balance sheet vehicles. Securitization wasn’t the only source of regulatory loopholes. ...
It had also been observed that the guarantees offered represented the government liabilities when the likelihood of bail outs increased. This further raised the systemic concerns and the looming severity of the country’s position economically. It has also been argued out that regulatory bodies exhibited flaws in the structuring of competition and poor incentives in risk taking within financial institutions.3 It should be noted that, weakness in the regulatory bodies were not only confined to the United States but rather the faults were within the financial services agency regulatory structure alongside poor banking laws were responsible for disarrays in the British financial sector. Moreover, it is pointed out that, division of power within the British financial organizations lead to the incapability of the financial sectors agency to implement the lender as the last resort activity. However, some analysts argue it out that, some benefits such as the acquisition of insurance and security dealings within the same regulators were ongoing even at the time when the activities were slowing down. During this period, deterioration within the financial institutions went quite far beyond the regulation of the financial systems. It was noted that as the boom prevailed, the shares of financial transactions that were not covered under the traditional regulation increased. Economists have argued that there was the corporate governance quality deteriorated within the boom years. Arguably, it was the period where gradual erosion in the ethics of business and moral standards was observed. It was also evident that the increased market valuation of firms led to
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The global economy was hit by a series of financial crises that, like a volcano, started erupting on August 9, 2007. For many years, business and economic factors have converged to this point, which is why this crisis had several causes that could not be reduced to a single individual, institution, nation-state or financial instrument.
Exports represent almost 65 percent of Belgium’s GDP. In particular, Belgium’s highly developed transportation system, and highly skilled and productive workforce focus on efficiency and technological development and others have allowed the country to stand in the line of the economic superpowers (Elliott & Cole, pp.
Although other countries were not directly affected by the crisis, they were still significantly affected by the crisis as their economies also crashed, the prices of oil and other commodities skyrocketed, and the banking crisis overwhelmed their economy.
2008–2012 Spanish Financial Crises Introduction Most economists agree that the 2007-2012 global financial crisis was the worst since the 1930’s Great Depression. The crisis was characterized by the threat of complete collapse of large financial institutions across the world, downturns in stock markets across the world, bailing out of banks by national governments and general slow-down in economic growth and development around the world (Shiller 35).
Institutions like Lehman Brothers, Citibank, HSBC and many other global financial houses simply crumbled to the unwinding financial crisis. Though the exact causes of the crisis may not be easier to explore and understand however, lax regulations are considered as the major cause of the crisis.
It saw to the near collapse of large financial institutions, the bailout of banks by national governments and downturns in stock markets across the world. The housing market also suffered in many areas that resulted in evictions, foreclosures and prolonged unemployment.
One of the most significant causes of the financial crisis disclosed by the author is the market instability. This was related with the poor credit lines which had deteriorated the money supply while limiting the economic growth. Individuals and businesses were unable to pay back their loans which also affected the assets and cash reserves.
For tackling this government of various countries introduced various measures like bail-out, economic stimulus packages etc. The main cause of the crisis was attributed to the lapse in regulation. Therefore the main change required is the
According to Wallison (2009), key issues that led to the crisis included increment and sudden reduction in house prices as well as increases in default rates in 2006. Furthermore, the collapse of stock prices in 2008 speeded by Bear and Lehman’s failures fuelled the crisis (Wallison, 2009, p. 3).
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