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Critically discuss the view that capital markets created the conditions that led to the new economy bubble and the banking crisis - Essay Example

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The collapse of the Lehman Brothers in September 2008 is considered to have singularly triggered a financial crisis that nearly brought down the world’s financial system. Lehman Brothers was one of the largest banking organizations with branches spread out across the world. In…
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Critically discuss the view that capital markets created the conditions that led to the new economy bubble and the banking crisis
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Extract of sample "Critically discuss the view that capital markets created the conditions that led to the new economy bubble and the banking crisis"

Download file to see previous pages While the bailouts were seen to greatly help in preventing the financial depression from spiraling out of hand, the economic recovery is seen to be quite feeble as compared to the other previous post-war upturns. By using different concepts and theories, this paper will show how the capital markets were responsible for creating both the conditions that led to the “new economy” bubble and the banking crisis.
A record is seen to have been set by the Dow Jones when it closed at 14,047 on October 9, 2007, however, just one year later, the Dow Jones was seen to be just above 8,000, after it happened to drop by a staggering 21% in the first nine day of October 2008. Across the world, most major stock companies had also experienced huge plunges alongside the Dow Jones. Numerous companies began to start laying off their workers in droves as they were force to put off any capital investments that they might have had. Credit markets became nearly paralyzed as individual consumers in the United States were systematically denied loans for college tuition and mortgages.
The effects of this crisis are still being felt in most rich countries and especially so in those located in Europe, where the financial crisis eventually evolved into the euro crisis. The 2007-09 global financial crisis is viewed to have been a very powerful reminder of the fact that crises can often have a multifaceted nature. The recent global financial crisis is perceived to have been triggered as a result of a combination of various complex factors that included relatively easy credit conditions seen in the period ranging between 2002 through to 2008. These conditions are seen to have encouraged a large number of high risk borrowing and lending practices without the capital markets first assessing factors such as international trade imbalances, default risk, government revenues and expenses fiscal policies and real-estate bubbles among other factors.
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