The valuable lessons learned from the crisis will also be discussed herein. Bear Stearns, AIG, Lehmann Brothers, Northern Rock, and Goldman Sachs are some elite names that suffered most because of the economic crisis also known as recession. Lehmann Brothers filed for bankruptcy while AIG and a few other elites just hung in there with the skin of their teeth. This economic crisis is still having repercussions on countries such as Greece and Spain; the whole of Euro Zone is facing a financial turmoil. There are a few other countries that have been not so severely affected by the same. The crisis was triggered off because of unchecked debt; banks kept issuing loans to people who invested heavily in buying assets; several things were taken for granted but when proved otherwise, there was hardly a place in the world to hide. Overvaluation in real estate is perhaps the biggest cause of the current economic crisis. It is better known as the subprime crisis in the US. The likes of Lehmann Brothers and other financial services went bust because they kept issuing credit to the people who thought the property price would increase and they would be easily able to pay off the debt that they are borrowing. It did not turn out that way and there was a short of equity. This is exactly why the financial institutions went bankrupt. The overvaluation is the biggest factor that caused the current economic crisis. Factors such as bad income tax practices have added insult to injury, bad mortgage lending also contributed heavily to this current economic crisis. “The way to address the root cause is to let house prices drop to where an average house is within the means of an average household. (Or, alternatively, boost the income of the average household to the point that they can afford an average house. But that's very hard. Letting houses prices go on falling, although painful for everyone who owns a house or who has lent money to someone who owns a house, is very easy)” (“Root Cause of the Financial Crisis”). Role of Monetary Policy Some of the main plausible reasons that caused the recent financial crisis have been identified in the above sections. According to Brunnermeie, cheap mortgage financing to sub-standard borrowers fuelled the boom in the U.S. housing market. Three factors were primarily responsible for the fall of the housing market in the U.S. (which, in essence, constituted a very small segment of the financial market in the country) transforming into a global contagion. First, the “originate and distribute” banking model, together with the high rate of securitization, led to declining lending standards and made it impossible to re-price the complex structured products. This significantly eroded the confidence level of banks, thereby disrupting the inter-bank markets and credit flow. Second, banks relied heavily on short-term funding sources, hence raising the risk of funding. Finally, the ever-growing integration of global financial systems and the increasing interest towards structured financial instruments quickly transmitted the crisis to all the major regions of the world. Gourinchas focused on the role of monetary policy in the recent financial contagion as well as the role played by exogenous influences, particularly the rising external deficits referred to as “Global Imbalances.” According to Gourinchas, both explanations are not satisfactory as the sole reason behind the crisis. This opinion has
Client’s name: Course: 10 August 2012 The great economic depression in 1930, in the US, was triggered off by the collapse of the US stock market which is now known as Nasdaq. It was the worst period of the US history; people slept on Hoover blankets and had no money to spend…
According to Mavrakis (2009, pp. 2 – 5), Islamic finance has emphasised on trying to remove completely any interest involved in financial transactions. The Quran, which is the Divine revelation presented to Prophet Mohammed, who is the Prophet of Islam, expressly forbids charging of interest, or riba, and Prophet Mohammad himself emphasised on this as mentioned in the Hadith, which is the other source of Islamic law, the Shariah.
The global financial crisis began proving its adversities by mid 2007. By the end of 2008, a great percentage of the financial institutions had collapsed leaving the government to devise means of alleviating the situation. This essay shall highlight the causes of the crisis, in relation to Peters (2010) as well as the measures undertaken by the government to change its monetary and fiscal polices so as to cope with the adversity.
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).
The current financial crisis is considered by many to be the worst crisis in the financial sector since the Great Depression because it has not only affected the United States but its effects have also been felt globally. This crisis has threatened the collapse of some big financial institutions and it has made governments use up large amount of money to bail out these institutions before they collapsed (Christopoulos 22).
Many have assigned the year 2004 as the year of the great credit crisis that first had a toll on the United States’ financial sector before other parts of the globe had its impact. However, there are indications that the credit crisis of the year 2004 was just a climax of a historically influenced turbulence in the world’s financial market that began with the end of “the golden age of capitalism in 1970’s” (Kapadia and Jayadev 33).
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.
This was one of the deficiencies of banking sectors of most of developing and developed nations in Southeast Asian region in the late nineties. The purpose of this paper is to examine the financial crisis in the South Korea and steps that the Government took to remedy and resolve huge economic problems that it faced at the end of the previous century.
Record numbers of people have lost their jobs in the past year and a half.
I have taken up the global financial crisis as my focus of discussion. The essay has been structured into three parts. The first part explains what recession is. The second part analyses the causes for this economic downturn and the third portion is where I have tried to provide some solutions that might help preventing the situation in the future.
In 2008, the overall world growth slowed down by 3 per cent (HM Treasury UK) in wake of political instability, economic downturn, humongous trade deficits, and heavy reliance on energy sources, creating peaks and troughs for oil and energy prices in wake of the Iraq war and the overall political uncertainty across the world.
The crisis not only imposed a huge threat to financial institutions that almost collapsed, but also resulted to bank bailouts by national governments in addition to stock market down turns globally (Shah, 2013). Apart from elaborating
2 pages (500 words)Essay
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