Outlining the major objectives of your essay • Analyse the major factors causing global financial crisis • Analyse the role of OTC derivatives in triggering the global financial crisis • Recommend the ways to control the OTC market in the future

The origins of the global financial crisis
There are several factors causing global financial crisis: 1. Growth of housing bubble & Subprime lending o particular advantage of low long-term interest rates was the US mortgage market. American households traditionally took out fixed-rate mortgages, often guaranteed by the government-sponsored enterprises, the GSEs. As rates fell, households refinanced in large numbers, but this extra origination business dried up once rates started to rise again. Rather than shrink their business, US mortgage lenders pursued riskier segments of the market that the GSEs did not insure, as Graph 4 shows. This included the sub-prime segment, but also so-called ‘Alt-A’ and other non-standard loans involving easier lending terms. At the time, this was considered a positive development, because it was thought that it allowed more people to become home owners. Products requiring low or no deposit, or with a low introductory interest rate were known as ‘affordability products’. They allowed households to pay the very high housing prices that their own stronger demand was generating. o http://www.rba.gov.au/Speeches/2009/_Images/150409_so_graph4.gif o As the US housing boom wore on, lending standards eased further. As Graph 5 shows, up until 2006 the sub-prime market segment increasingly allowed mortgages with very high loan-to-valuation ratios: that is, borrowers did not need much deposit. Low-doc loans became more common across the board. Negative amortisation loans, sometimes called ‘Pay-option ARMs’, also became more common. These are mortgages where the