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Reforms in the International Finance System - Essay Example

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Reforms in the International Finance System

According to the research findings the global financial crisis did not occur over night; rather it was a series of occurrences that led to the progression of the crisis, which impacted the entire world. The US National Bureau of Economic Research asserts that the financial crisis began in early to mid 2007. The most notable start of the financial crisis was the marketing and sale of US mortgage-backed securities that had risks, which proved difficult to assess. This marketing took place on a global basis that saw risks being spread out to all areas of the globe. In addition, a comprehensive credit boom exemplified the international speculative bubble witnessed in industries such as the real estate and equities industries of the global economy. This further enhanced the risky practice in terms of financial institutions’ lending capacities. Drastic increases in global food and oil prices also served to enhance the precarious financial status of the world. However, the financial crisis actually began following the surfacing of sub-prime loan losses in 2007. This uncovered risky loans and the over-valued asset prices. As loan losses increased, as well as the collapse of Lehman Brothers, a global panic broke out in the inter-financial institution loans market. When share, as well as housing prices, eventually declined, a majority of financial and investment institutions in the US incurred massive losses, with some even facing bankruptcy. This ultimately led to major public, fiscal assistance to the tumbling institutions. The global financial crisis led to a sudden decline in international trade, massive unemployment and collapse of global prices of essential commodities. In summation, the situations that led up to the financial crisis include the boom in demand for financial instruments, excessive rise in asset prices, all of which were compounded by lack of sufficient regulation. The financial crisis subsided in late 2008, but the global economy has experienced several aftershocks. Reason behind the Financial Crisis The reason behind the global financial crisis is a complex combination of liquidity and valuation issues in the global banking sector in the year 2008. In the US, in year 2007, the global economy experienced a boost following the emergence of a real estate bubble in residential markets. The real estate bubble refers to a scenario where real estate is sold at highly inflated values. The 2007 real estate bubble ...Show more

Summary

This paper will examine the global financial recession of 2008, describing its causes, effects and reform proposals such as removing some virtual assets, lowering speculation in financial markets and creating a special financial institution to boost companies…
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Reforms in the International Finance System essay example
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