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In the light of these( moshirian& long-staff) and other relevant articles, critically evaluate the reasons for the recent global - Essay Example
Finance & Accounting
Pages 8 (2008 words)
The Reasons for the Recent Global Financial Crisis and number Date submitted The Reasons for the Recent Global Financial Crisis Introduction The causes of the recent global financial crisis fall into three broad categories and several sub-categories…
The third one includes the multiple misunderstood innovations in financial engineering, which, in turn, include sub-prime mortgages, credit default swaps, new forms of securitization, and lack of responsibility in large private financial institutions, which operate globally. Many analysts conclude that the crisis was because of poor financial engineering innovations and failures in the financial sector regulations and supervision (Moshirian 2011, 502; Casu et al. 2006, 58). Fiscal policy in the United States led to low saving rate and monetary policy, which was persistently simple (Casu et al. 2006, 58). Other countries affected by monetary policy problems include several countries in Asia, the United Kingdom, Switzerland and some countries within the Euro zone, which had issues with the real interest rates. Many countries, like Korea, had policies that led to large amounts of foreign exchange reserves. The policies also led to global imbalances and distortion of international adjustment process. These reserves put pressure on the macro-economic policies of many countries including the U.S. global imbalances phenomenon. This, however, was not a main cause of the recent economic and financial crisis. The imbalances and the crisis happened simultaneously as a result of faults in design and implementation of macro-economic policies in the world. This led to increase in global credit. ...
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