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Reasons for the recent global financial crisis - Essay Example

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Author : omurphy

Summary

This research is being carried out to critically evaluate and present reasons for the recent global financial crisis. The opening of the report consists of the explanations for the financial crisis. The entire explanations combine together to give an overview of the severity of the crisis…

Extract of sample
Reasons for the recent global financial crisis

The present article has identified that the cause of the recent financial crisis and economic recessions has been attributed to various factors in the economy. The initial trigger of the financial crisis has been traced to the toxic mortgage backed assets whose decline in value and uncertain duration led to massive losses in the U.S economy. Fannie Mae and Freddie Mac were both taken over by the US government. Lehman Brothers was declared bankrupt since it could not increase its capitalization. Merrill Lynch was bought by the Bank of America while American International Group (AIG) was rescued by the Federal government through an $ 85 billion capital bailout. Washington Mutual which is currently the largest bank failure was purchased by J P Morgan Chase. The crisis can be traced to the failure of the real estate market due to subprime lending which saw the commercial and residential housing prices increase for a decade from 1990. The Asian financial crisis of 1997-1998 saw the economies in Asia generate huge current account surpluses which were invested offshore in economies like US and UK in order to keep the nominal exchange rates low. The US stock prices went high due to the influx of capital. The high growth in economic demands and especially in China saw commodity prices such as minerals, oil and food soar up from late 2004 to late 2007. There are numerous explanations and arguments which have been proposed as the causes of the 2008-2009 financial crisis and the recessions. ...
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