2007/09 Financial Crisis

The financial crisis that happened during 2007-09 was considered the worst financial crisis in the world since the great depression in the 1930s. It leads to a series of banking failures and also prolonged recession, which have affected millions of Americans and paralyzed the whole financial system. Although it was happened a long time ago, the side effects are still having implications for the economy now. This has become an enormously common topic among economists, hence it plays an extremely important role in the economy. There are many questions that were asked about the financial crisis, one of the most common question that dragged attention was ’’How did the government (Federal Reserve) contributed to the financial crisis?’’

An excess of regulation, rather than an insufficiency of it, was the principal cause of the recent credit crunch.

The U.S. withstood a nearly extraordinary arrangement of stuns in the years from 2000 through 2011. The rundown of catastrophes is extraordinary to the point that it merits rehashing, only for accentuation. The 2000s were likewise time of noteworthy political brokenness. The early 2000s comprised of numerous occasions, for instance there were the economic debacles. In 2000 the tech bubble popped, and in 2008 the lodging bubble took after. The Financial Crisis from 2007-2008, was one of the most tragic times in world history.

Several factors lead to the 2008 financial crisis. The 1999 repeal of the Glass-Steagall Act effectively removed the separation between investment banks and depository banks in the United States. Credit rating agencies failed to price the risk involved with mortgage-related financial products accurately. The Government, concerned with not performing economically as well as the Clinton administration believed increasing home ownership was the answer and reduced obstacles (like loan income/debt documentation). The world 's insurance companies began insuring mortgage instruments. Excessive investment leverage, especially in the Banks and venture capitalist communities. And the Government did not adjust their regulatory practices to address 21st-century financial markets- especially in credit default swaps (CDS). These factors set the stage for disaster and greedy speculators wanting to short the housing market triggered it by systematically exposing the mortgage risks to the world.

One of the most devastating aspects of the financial crisis of 2007-2008 to middle-class America was the crash of the housing market. Millions of Americans were affected and faced foreclosures on homes that were purchased with subprime mortgages. The impact of these mortgages varied state to state. Nevada, one of the countries leading tourist destinations, led the market in foreclosure rates and housing appraisal drops. The government 's false sense of security in regards to the economy and the predatory lending practices of big banks such as Bank of America, JP Morgan and Wells Fargo, impacted the housing market negatively and ultimately led to millions of people in debt and without a home.

In regards to the Financial Crisis of 2007-2009, a few conceivable reasons can be taken into consideration. For instance, high consumer deficit, high corporate deficit, complex money related securities, transient subsidizing markets got to be vital, extensively feeble administrative/business sector controls, shortcoming in the share trading system, shortcoming in the housing business sector, as well as worldwide monetary shortcomings. Besides the previously mention examples, the untrustworthy conduct by budgetary organizations, the disappointment of the national bank to stop lethal home loans, and over-obtaining by consumers can also be incorporated and taken into account. The effect of the monetary crisis from the perspective of firms was that they confronted declining interest for their products. The organizations thought that it was hard to acquire reserves, in light of the fact that the banks' trust in them had declined. Moreover, the organizations confronted solid rivalry from outside organizations. The likelihood of bankruptcy lingered. From the point of view of investors, the crisis implied conceivable loss of stores and loss of avenues to contribute (Carbaugh, 2006). The financial specialists expected to hunt down more

The financial crisis of 2007–08, also known as the Global Financial Crisis, is considered by many economists to have been the worst financial crisis since the Great Depression of the 1930s. Mr. Ben Bernanke, Chairman of the Federal Reserve at the time, believed it was equally problematic in many ways; although unemployment only reached half the level due to the Fed’s actions combined with a $700B stimulus. It collapsed large financial institutions, and stock markets dropped to half their pre-crisis level. The surface cause was the bursting of the U.S. housing bubble, which had peaked in 2004, caused the values of securities tied to U.S. real estate pricing to plummet, damaging financial institutions globally.

The outbreak of 2007-2009 financial crisis and its devastating impact on the economy left no room for further implementation of conventional monetary policy. Once the zero lower bound had been reached, as well as the connection between official interest rates and market rates was lost, it was obvious to policymakers that they were in front of an exceptional situation, and in an analogy to what Hippocrates claimed about remedies, this situation called for exceptional measures that could support the functioning of financial markets.

The financial crisis of 2007-2008 had more sounding effects on financial institutions even greater than the crisis brought about by the stocks downfall in the 1990’s. The reason for this is that the financial institutions were at the centre of the whole crisis. And financial institutions being one of the key pillars in a country’s economy, the crisis was bound to have a big effect in US as a whole. So, in order to understand what rely happened, it is wise to go through the paper written by Nicholas Barberis about the whole crisis (Barberis, 2011).

In the 1930s the United States was hit by far the worst financial crisis that it has ever encountered, which was called The Great Depression, but the second worst was not that long ago. During the Financial Crisis of 2007-2009 the United States had a chain of banking failures and a tremendous growth of liability in the federal budget. However, the government had stepped in to prevent some of these failures and through this the concept of “Too Big To Fail” was created.

Just after ten years of Asian financial crisis, another major financial crisis now concern for all developed and some developing countries is “Global Financial Crisis 2008.” It is beginning with the bankruptcy of Lehman Brothers on Sunday, September 14, 2008 and spread like a flood. At first U.S banking sector fall in a great liquidity crisis and simultaneously around the world stock markets have fallen, large financial institutions have collapsed or been bought out, and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems. (Global issue)

There are so many reasons lead to global financial crisis in 2008. In this case, I want to mention to seven main causes which directly promoted financial collapse.

Risk management provides organisations with common tools to deal with uncertainty. (Hillson, 2006) Risk management aims to build a communication between internal parts of organisation. This language of communication is given name by many risk management authors as “risk language”. Failure of communication between internal departments results in failure of success, as well as rises the risks the organisation may face in future due to lack of communication. The one of the most important principles in risk management is being the integral part of whole organisation. The organisations failing to integrate its risk management to entire organisation, fails to establish an effective risk management policy. The risk management implemented separate from organisation tends to be ineffective, as a result of less engagement into the processes within organisation, poor communication with other departments (Beaumier, 2012). Risk management should involve all staff and everything within organisation. Human

One well accepted description of risk management is the following: risk management is a systematic approach to setting the best course of action under uncertainty by identifying, assessing, understanding, acting on and communicating risk issues. In order to apply risk management effectively, it is vital that a risk management culture be developed. The risk management culture supports the overall vision, mission and objectives of an organization. Limits and boundaries are established and communicated concerning what are acceptable risk practices and outcomes. Since risk management is directed at uncertainty related to future events and outcomes, it is

There are changes that insurance companies must undertake, not just to survive, but to succeed in today’s market. One of those changes is how the business manages risks. Risk management was listed by PricewaterhouseCoopers LLP, as one of the top insurance industry issues for 2013 (Top Insurance Issues, 2013). Risk management for insurance companies “is the process by which companies systematically identify, measure and manage the various types of risk inherent within their operations” (Risk Management, 2013). One of the objectives for sound risk management program is the ability to manage the exposure of the business to capital volatility and potential earnings. Despite the fact that not all risks may be removed, businesses still must identify, assess, control, and mitigate risks. A comprehensive risk management program allows organizations to identify and quantify their risks and to set risk tolerances based on corporate objectives. According to Risk Management (2013), risk management tools and practices across the insurance industry have advanced significantly in recent years. Implementation of risk management programs, which include models for economic capital, catastrophe management and hedging programs have helped the insurance industry to respond to the ever changing risk dynamics.