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Discuss and analyse the recent global financial crisis and consequent credit crunch - Essay Example
Author : johanborer
Finance & Accounting
Pages 7 (1757 words)
Discussion and Analysis of the Recent Global Financial Crisis and the Consequent Credit Crunch Events Leading To the Global Financial Crisis There has been a considerable debate on the events that led to the global financial crisis. However, the genesis of the global financial-turned-down crisis can be linked to the combination of absence of proper regulations and worldwide financial excesses…
Massive trade excesses in some nations, and deficit in trade in other nations and lastly, savings rates that were too high in some areas of the world and too low in others were also other events that led to the global financial crisis (Kirton, Oldani, and Savona 2011, p90). The recent global financial crisis events began on 9 August 2007. On that date, there was a seizure in the banking system, which was instigated by the BNP Paribas’ move, to cease its activities in three hedge funds that focused on US mortgage debt (Elliott 2011, p1). In 2008, credit markets in the Wall Street froze, and this indicated that credit crunch crisis was eminent. This affected everything in the financial markets (Szilagyi 2011, p18). Sustained low interest rates that began in 1999 up to 2004 made the adjustable-rate mortgages (ARMs) look very attractive to the potential buyers. The low interest rates were largely driven by the huge current deficit in the United States and other nations such as China who purchased the US Treasury bonds (Marshall 2009, p10). There is strong evidence that suggests that, in most parts of the United States, it had become very easy and cheap to get a subprime mortgage (Marshall 2009, p11). The upward rise in the house prices was as a result of the property speculations. ...