inancial institutions either collapsed or were bought out, world stock markets fell and even the wealthiest nations’ governments had to devise rescue packages in order to bail out their monetary systems. In addition, there has been a stern depreciation of financial currency, economic indicators, down as well as increase in unemployment among others. This paper discusses the global financial crisis with its focus being on its main causes. It further looks into the steps that the government of the United Kingdom could take to reduce the risk of another crisis.
Financial crisis is a scenario in which the demand for money supersedes its supply. In its occurrence, disruptions on the financial markets occur, which make them inefficient in directing finances to those with the most productive investment opportunities. It consequently shifts the economy to equilibrium with a severe drop of output from one with high output characterized by a great performance of financial markets (Businessdictionary.com, para1, 2010).
Shah (2008) asserts that the global financial crises began in the United States owing to the United States’ housing bubble-burst harmfully affecting her economic development. It led to a harsh financial crisis that speedily spread globally. This rapid global spread of the financial crises was possible because of globalization. Globalization has closely inter-connected trade, stock and financial markets, housing, goods and services worldwide, resulting into greater global interdependence. Bartlett & Ghoshal (2002) assert that one of the backlashes against globalization is the ‘globalization growth bubble bursts’. They argue that it came about during the period of transition to trans-nationality 1990s and 2000s whereby new bases of competition emerged with the emergence of competitors with different strengths.
Davis (2009) argues that finance decisively shaped the economy of the United States shifting it to a postindustrial from an industrial one and