...What are the causes of the global financial crisis? Name: Course: Tutor: Date: What are the causes of the global financial crisis? Introduction Achieving stability has always been the number one priority in any county or organization. Financial stability is probably one of the most sort after achievement everywhere in the world. When a country or company fails to attaining financial stability then things are deemed to go wrong. The global financial crisis brought about the worst kind of financial instability in the global economy. It started in the United States and spread all over the world like wild fire. Even the top performing economies in Asia like China were not left out. This economic turbulence brought about both economic and social hardships (Helleiner,1994) . This was partly blamed on the already established Capitalist ideologies that prevailed especially in the United States. This crisis exposed most economies to financial difficulties as it proved the dependence of most nations on dollar denominated financial transactions. The only way to salvage these economies was through fiscal and monetary interventions by the Governments of the day. Bail-out packages were presented to major economy drivers and industries to help ease the financial crisis that had affected their operation. The collapsing of large financial institutions like the Lehman Brothers bank brought about a lot of chaos in the industry. Large bailout packages were used to help revive...
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...Abstract The United States is going through one of the most serious financial crisis’ since the 1930’s. As a result, many people are losing their jobs and some companies are filing for bankruptcy. There are many causes that may have led to this financial crisis. Some include Bush’s investment in the Iraq war, subprime lending awards mortgages to people with poor credit, defaults on loans force banks to raise equity, but most importantly, greed. Not only is there a crisis going on in the United States, but there is a crisis occurring globally also. Bush and his investment in the Iraq war could be a cause to this financial crisis. Prices of everything have gone up and people have to spend more money on items so this causes them to be unable to pay off debts of loans to the banks. When that occurs, banks take a low blow because they miss out on the money. So many people are losing their houses due to lack of income banks. They have to pay the remaining money to the town/government. So after paying the houses of so many people, the banks go bankrupt. If banks go bankrupt, there wouldn’t be anyone to lend money to businesses. There wouldn’t be any jobs if there aren't any businesses. This all leads to no income. The war in Iraq increased oil prices, which increased service prices because everything needs to be delivered in cars or trucks so people have to pay more for goods. But they aren't getting paid more money so they end up losing money. This graph is showing the real...
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...led to failures of many other firms. Another cause of the crisis is the quality of financial assessments and securities. Credit-rating companies, issuers and investors were all too optimistic about investments. Many firms held securities containing highly positively correlated risks, and failed to diversify their portfolio to decrease risk. Thus, their operations ran on very risky investments that were incorrectly evaluated by credit-rating companies. As a result, these toxic financial assets are a major cause of failure of many firms. The influence of foreign investments also caused the financial crisis. Counties with large trade surplus with the US, such as China, preferred safe investments. They bought huge amounts of treasure bonds, and pushed rate of yield down. As a result, foreign investors started to invest in mortgage market related securities. This huge amount of foreign investment gave US mortgage firms more money to lend out; thus, raising the price of housing. In response to the abundance of investments, lenders became overly optimistic, and loaned money to individuals that were not able to pay back the loan. Then, the large number of foreclosures drove down the real estate value as well as these mortgage-related securities. These foreign investments gave American mortgage firms false optimism, which led to over lending and the downfall of the housing market. The Fed realized that one of the main causes of the...
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...The financial crisis of 2008 rocked the global economy. As one major investment bank went bankrupt, other American financial services institutions were in poor health due to their own banking practices. However, these practices occurred due to the failure of government regulators. Ronald Reagan’s plan to stimulate the American economy in the wake of the 1980s recession led to sweeping deregulation in the financial services sector (Komai) (Inside). This deregulation and the failure to properly enforce regulatory powers by those in the Federal Reserve and Treasury Department led to increasingly risky behavior by banks (Inside) (Das) (Rajan). The repeal of The Glass-Steagall Act in the late 90s meant that the banks engaging in these risky operations were larger than ever before and were using depositors’ money in order to trade for the benefit of the firm rather than its clients (Roubini) (Rajan) (Sorkin) and it is that risky behavior that ultimately led to the near collapse of the world’s economy. Although banking leadership must be held responsible for the practices that many institutions in the financial services sector engaged in (Sorkin), the failure to adequately regulate the banking industry gave banks the opportunities to engage in the behavior that caused the crisis (Inside) (Rajan) (Taylor). In the years since the crisis, and as the global economy continues in its efforts to recover, many have called for strict reform of Wall Street regulations (Acharya). Legislative...
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...Securitization Mortgage Backed Securities Collateralized Debt Obligation Credit Default Swap Government Reaction and Policies Emergency TARP Repercussions Basel Disadvantages Future Policy Requirements Controversy Conclusion Reference List Review of the causes of the 2008 Financial Crisis in US. Abstract This paper seeks to summarize a stream of research that has delved into the major causes of the financial crisis in 2008. More precisely, we will be looking at a combination of causes such as the sub-prime mortgage crisis, the mortgage backed security, the collateralized debt obligation as well as how the incidental credit-default swap contributed to the incident. This paper will begin from analyzing the past, when it happened and how it built up and resulted in the financial crisis. The significance of this literature review seeks to give a simplified explanation of the financial crisis of 2008 and will be useful for the people unversed in economics or finance but wish to have a basic understanding of its causes and history. The Tech Bubble During the early 2000, numerous companies and individuals bought new operating systems that were Y2K-ready in fear that the “Y2K” problem would cause computer systems to malfunction. This had allowed technology companies to generate obscene amounts of revenue. At one point, the telecommunications giant, Nortel, owned one third of the stock markets in Canada (Wahl 2009). As a result, stock prices of these companies...
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...Causes of the Indonesian Financial Crisis When the financial crisis hit Asian countries in mid-1997, Indonesia did not escape the impact. It became one of the worst hit countries during the crisis. The question to be answered is what really caused Indonesia, which at the time had a magnificent economic growth to collapse along with most of Asian countries. This paper studies the factors that may be causing the crisis and how the combination of them could lead to such crisis. Indonesia’s Economy before the Crisis * Indonesia under the governance of President Suharto was considered a growing and vastly developing country, with a 7.9% growth in GDP in 1996. GDP per capita first surpassed $1000 in 1995, growing significantly from mere $70 thirty years ago. Total GDP was US$227 billion in 1996. (exhibit 1) * Surplus on merchandise trade through the 1980s and 1990s. Manufactured exports grew from less than US$1 billion in 1980 to more than US$9 billion in 1990. In 1996 total exports was US$49.8 billion, with a growth of 9.7% from the previous year. 76.5% are from non-oil and gas exports. Main destinations were Japan followed by USA and Singapore. * In 1996, imports totaled US$42.9 billion, grew 5.7% from the previous year. * Indonesia was the third-largest FDI recipient in the Asia Pacific, averaging over US$31 billion per year from 1994 to 1996. In 1997 before the crisis, FDI was US$16 billion. * In 1991, foreign debt increased 66% from 1988. In 1992, the total...
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...acid which makes up the genes for all living things) is extracted from one organism to put it in another organism’s DNA, therefore it introduces in hereditary traits into the receiver organism (“How Stuff Works”). The nature and characteristics of all living things are determined by special combinations of genes that are carried in their cells, therefore the least changes or alteration can bring a major amount of changes in an organism and its offspring (“How Stuff Works”). Genetic Engineering does not only consist in plants, animal breeding and fertilization of crops it also includes polyploidy (organism which two sets of homologous chromosomes), mutagenesis (process in which the organisms genetic material is changed in sable manner that causes mutation), and cell fusion techniques which does not involve recombinant nucleic acid or genetically modified organism in the process (Wikipedia). Cloning and stem cells also do take a part in Genetic Engineering (Wikipedia). Advances in Genetic Engineering are also playing an important role for agricultural and economic welfare. GMO (Genetically Modified Organisms), the prospect of Genetic engineering amongst agricultural brought some benefits like increasing crop yields, reduction cost for food and drug manufacturing, moderates the needs for pesticides, improved the configuration of nutrients and food quality, great amount of food safety and provides medical benefits the world’s increasing population (“Nature”). Advances have also...
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...The financial crisis which began in July 1997 in the East Asian countries, Thailand, Indonesia, Malaysia and Korea, has had devastating effects on their economies. Growth rates in these countries which were in excess of five percent before 1997, turned sharply negative in 1998 and, at the time of this writing it is not yet clear when these economies will turn the corner and resume positive rates of growth. This paper examines why these countries, which were part of what has been termed "the Asian miracle" and were able to eradicate so much poverty, are now undergoing severe economic contractions, with such harmful effects on their populations. A breakdown of information in financial markets is the key factor that has driven this crisis. After laying out an asymmetric information view of the Asian financial crisis, this paper goes on to use this framework to explore lessons from this crisis. 1. An Asymmetric Information View of the Asian Crisis The financial system plays a critical role in the economy because, when it operates properly, it channels funds from those who have saved surplus funds to those who need these funds to engage in productive investment opportunities. The major barrier to the financial system performing this job properly is asymmetric information, the fact that one party to a financial contract does not have the same information as the other party, which results in moral hazard and adverse selection problems. An asymmetric information view of financial...
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...[pic] [pic] Assignment Course code: ECON 403 Course title: Monetary Theory and Policy Lecturer: Asst. Prof. Dr. Hasan Gungor Student: Murad Alakbarov Student number: 065028 Task for Assignment II: Compare and contrast 1929 – 39 Great Depression and current global economic crisis with respect to causes and responses and actions of monetary authorities to this crisis. Introduction “…In the old days, we used to suffer nearly periodic economic crises, the sudden onset of which was called a "panic", and the lingering trough period after the panic was called "depression". The most famous depression in modern times, of course, was the one that began in a typical financial panic in 1929 and lasted until the advent of World War II. After the disaster of 1929, economists and politicians resolved that this must never happen again. The easiest way of succeeding at this resolve was, simply to define "depressions" out of existence. From that point on, America was to suffer no further depressions. For when the next sharp depression came along, in 1937-38, the economists simply refused to use the dread name, and came up with a new, much softer-sounding word: "recession". From that point on, we have been through quite a few recessions, but not a single depression. But pretty soon the word "recession" also became too harsh for the delicate sensibilities of the American public. It now seems that we had our last recession in 1957-58. For since...
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...| Research Paper Prospectus | Economics Capstone | 02/12/2012 | Since the U.S. banking crisis of 2007, more than 280 banks in the United States have failed and presently continue to do so. With the closures of these banks, jobs were lost; and the economy has suffered greatly. The banking crisis of 2007 has been considered the largest since the Great Depression. Many researchers, policymakers, economists, and other individuals blame the subprime mortgage market and its collapse for triggering the U.S crisis; many also wonder how such a relatively small market as subprime could cause so much trouble around in the U.S, especially financial institutions that did not get involved with subprime lending or with investment in subprime securities. This paper analyzes financial and economic circumstances associated with the United States financial turmoil that has led to the banking crisis. Section 1 analyzes the collapse of the subprime mortgage market in the United States and outlines factors associated with it. Section 2 outlines the economic factors that led to the banking crisis in 2007. Section 3 summarizes suggestions of research about how to remedy the current crisis and possibly avoid crises in the future. Section 4 will discuss the conclusion of the research. The first signs of the subprime mortgage market collapse in the United States were very high and unusual even for subprime market delinquency and foreclosure rates for mortgages originated in 2006 and 2007. Reinhart...
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...movement of Global Stock Market Indices | | | | Name: Abhisek Rathi Matriculation Number: 22030512 Submitted To: Prof. Dr. Frank Brand Submission Date: December 17, 2012 Contents Introduction 3 Stock Market Co-Movement 4 Causes 4 Data Analysis 6 Observations 9 Implications 10 References 12 Introduction The global financial crisis of 2008 was the biggest economic crisis faced by the world since the great depression of 1929. The crisis started to brew in the US in 2007 and many believed it would be largely limited to the shores of the US. However, the collapse of Lehman Brothers in 2008 was sufficient to trigger a worldwide stock market collapse, the effects of which are felt to this day. The worldwide collapse of stock market can be understood by considering the world as a single big marketplace. Analysing the co-movement of various financial markets has gained importance in the recent past both for policy makers, in terms of policy co-ordination, and portfolio managers, for portfolio diversification. For policy makers, high co-movement would facilitate transition in local currency areas resulting in potential efficiency gains from stock market merger activities. This, in turn, will result in greater financial stability across the regions. However, for portfolio managers, high correlation between international stock markets would reduce the benefits of portfolio diversification creating the need of searching other assets with lower correlation. ...
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...1. Introduction The Global financial and economic crisis in 2007 and a liquidity crisis of the world's leading banks force us to reconsider the debt relations. Credit boom accompanied by rising debt payments, could not continue persistently. Debt servicing was possible only with high incomes or assets value of the debtor, and as soon as the growth of income or assets stopped, the debtors have faced problems in servicing their debts: in spite of the decline in income and assets value of debt borrowers’ debt during the crisis did not reduce. As a result, the debtors faced decoupling of debts from assets. According to Minsky decoupling between firms’ debt and assets, or the debt crisis caused by the cyclical nature of economic development: at...
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...The Global Financial Crisis and Its Impacts on Developing Countries Student’s Name Professor’s Name Institution Dates Page no. 1.0 Origin of financial crisis………………………………………………………………… 3 2.0 causes of the financial crisis …………………………………………………………. 3-4 3.0 Channels of Transmitting Financial crisis ……………………………………………… 4 3.1 Transmission through financial flows ……………………………………….. 4-6 3.2 transmission through trade ……………………………………………………… 6 4.0 responses to the crisis by developing countries ………………………………………. 6 4.1 fiscal stimulation measures ………………………………………………….. 6-7 4.2 money policies ………………………………………………………………….. 7 5.0 reference ………………………………………………………………………………… 8 The Global Financial Crisis and Its Impacts on Developing Countries Origin of Financial Crisis The financial crisis originated form the United States’ economy. In the year 2007 during summer after two Bear Stearns Hedge Funds collapsed resulting to subprime mortgage crisis. This financial crisis reintroduced private defaults, bank failures, massive layoffs and credit crunch to the world. The financial crisis was as a result of too much foreign money from Asian countries like China flowing into the economy of US (Savona, Kirton, & Oldani, 2011). Causes of the Financial Crisis Creation of too much money by the banks had led to the crisis. New money is created when the banks give loans to the public. By giving loans, the banks created a large sums of money during the run up to the financial crisis. Many people had...
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...RESEARCH METHODS FOR FINANCE The IFRS measures impact on French bank securities volatility during the financial crisis In Group with Mr Duchemin and Mr Melloul Benjamin CNUDDE Introduction: The world of finance is from now global and has huge repercussions all over the planet as we could see during those last years of the recent recession. The subprime crisis triggered in the United States during the second half of 2006 has quickly turned into an international financial crisis with huge repercussions on the European financial markets. Banks and financial intermediaries were particularly affected by it because of the fair value accounting for financial instruments. As we all know, the real estate crisis in the United States has been the triggering element of the financial crisis which has initiated the international financial crisis we are facing now. Credit rarefaction and an obvious rise of market volatility were the fundamental consequences of the crisis. And to stop the proliferation of the crisis worldwide (especially provoked by the “toxic” assets owned by banks) comes the International Accounting Standards Board (IASB) intervention. We will discuss if such an intervention has managed to prevent a rise of the French banks securities volatility. In the financial crisis we are passing through, many personalities criticized the installation of IFRS (International Financial Reporting Standards), and notably concerning the impact on fair value. According to Christine Lagarde...
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...Table of content I. Introduction to credit crisis and Bank CEO Incentives…………………….2 II. Other factors of credit crisis………………………………………………3-4 a) Housing bubble b) Interest rate and inflation c) Unemployment III. Conclusion…………………………………………………………………..5 IV. References……………………………………………………………………6 In my following essay, I will try to explain clearly about credit crisis and Incеntivеs оf Bаnk Chiеf Exеcutive officеrs are nоt mаjоr fаctоr in crеdit slump. At first, lets to еxplаin what are сredit сrisis and its rоle in еcоnоmy. Making a hard to obtain financing to debtors by shortening of funds in the credit market is called as credit crisis. It is because of limited assets obtainable for lending and the price for assets for borrowing are increases so fast. Creditors don’t want or can not to lend an asset again, because they meet to losses on previous loans. This is caused by non-payment by debtors and defaults on loans, which decreases their value. In this situation, banks are trying to recover expenses and to return all money that they lost by selling debt. Then, if prices fall, the bank suffers losses. They cannot borrow a huge amount of funds if capital reduces. Also, if the banks take on more risk in the market, they will increase interest rates on loans to reward for this risk. It will bring to increasing the price of borrowing, but also will bring to decreasing the borrowers. In general, reducing the liquidity of capital and reducing...
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