Global Financial Crisis And Its Impact On Economic Policy And Outcomes

The financial crisis of 2007-2009 resulted from a variety of external factors and market incentives, in combination with the housing price bubble in the United States. When high levels of bank and consumer leverage appeared, rising consumption caused increasingly risky lending, shown in the laxity in the standard of securities ' screening and riskier mortgages. As a consequence, the high default rate of these risky subprime mortgages incurred the burst of the housing bubble and increased defaults. Finally, liquidity rapidly shrank in the United States, giving rise to the financial crisis which later spread worldwide (Thakor, 2015). However, in the beginning of the era in which this chain of events took place, deregulation was widely practiced, as the regulations and restrictions of the economic and business markets were regarded as barriers to further development (Orhangazi, 2014). Expanded deregulation primarily influenced the factors leading to the crisis. The aim of this paper is to discuss whether or not deregulation was the main underlying reason for the 2007/08 financial crisis. I will argue that deregulation was the underlying cause due to the fact that the most important origins of the crisis — the explosion of financial innovation, leverage, securitisation, shadow banking and human greed — were based on deregulation. My argument is presented in three stages. The first section examines deregulation policies which resulted in the expansion of financial innovation and

One of the primary factors that can be attributed as to have led the recent financial crisis is the financial deregulation allowing financial institutions a lot of freedom in the way they operated. The manifestation of this was seen in the form of:

Economists called the recent Global Financial Crisis the worst financial crisis since the Stock Market Crash of 1929 and the Great Depression. The United States of America are in a time of recession and increasing numbers of people are finding themselves in need of assistance. Low-income individuals and families are suffering as hours are cut, benefits shrink, and programs they depend on disappear due to state budget cuts. It is imperative that the government find an efficient policy response that benefits as many low-income individuals and families as possible in the next five years.

In his book, “Diary of a very bad year: Confessions of an anonymous hedge fund manager”, Keith Gessen provides a captivating, entertaining and a shocking account of the 2008 financial crisis. The 2008 financial crisis is described as the deepest dives and the steepest recovery of a catastrophic mortgage crisis. The analysis will incorporate the “Efficient market hypothesis.” In addition, the analysis explains the concept of “financialization of markets.” The confessions of the hedge fund manager debunk the theory of rational markets. In addition, rational reasoning is a trait certainly absent in the financial sector. The absence of logical reasoning in the financial sector is to be blamed for leading the economy down the path of utter chaos and destruction instead of steering towards a more prosperous, less economically fickle future. Lastly, examine the role of the government in bailing out the financial sector.

The recent financial crisis has a huge impact on systemic Important Financial Institutions; it’s distressing effect can be felt in almost every business area and process of a bank. A fairly large literature investigates the impact of financial crisis on large, complex and interconnected banks. The great recession did affect banks in different ways, depending on the funding capability of each bank. Kapan and Minoiu (2013) find that banks that were ex ante more dependent on market funding and had lower structural liquidity reduced supply of credit more than other banks during crisis. The ability of banks to generate interest income during the financial crisis was hampered because there was a vast reduction in bank lending to individuals and

“Panic was spreading on two of the scariest days ever in financial markets, and the biggest investors were panicking the most. Nobody was sure how much damage it would cause before it ended” (Nocera, 2008, pg. 1). This is what happened as the financial crisis spiraled out of control in 2008 as bankers, investors, and insurance companies realized what they had done. The basic outline of the crisis looks mainly at the mortgage and credit disaster that was caused by the bursting of the “housing bubble”, but the main causes can be traced back to huge developments that shaped the American political economy and its policies within the last 50 years. While we do see this monetary motivation and over confidence as an underlying theme of the mortgage and credit crisis, there are other factors that contributed to the disaster. Some examples are an extremely strong and influential financial sector, lack of regulations from the U.S. government, and the neoliberal shift of the 1970s. While the mortgage securities and credit crises are recognized to be the immediate causes of the financial crisis of 2008, I argue that the strong financial sector and neoliberal shift in the 20th century are ultimately what set the stage for the financial crisis, making it hard for the U.S. to persecute banks and investors for the financial misconduct during this time.

Taking into consideration the adverse impact of the 2008-2009 financial crisis we have examined main governmental policies used to prevent future economic fluctuations and its instruments for reducing crisis ramifications. Although methods are numerous, most of them proved their deficiency and ineffectiveness. In particular, traditional monetary policy cannot be a sufficient incentive for economic recovery anymore. Unconventional monetary policy, in its turn, is a two-edged tool with unpredictable after-effects. The third branch called macroprudential approach has the most favorable prospects in the future as it ensures the policy is consistent and draws attention to the microeconomic level.

The financial crisis of 2008 was one of the worst recessions in American history since the Great Depression. During the financial crisis of 2008, big banks lost their money, the stock market crashed, people lost their houses, and the value of loans plummeted. The financial crisis of 2008 was a crisis in value for the financial market, which bled into the economy of the country. The way that the system of banking was set up made the economy of the country extremely vulnerable to any risks taken in the financial market. In the end, the government had to step in to bail out banks and to create policies to upturn value into the economy. In this paper, I describe the financial system that was in place, which caused the crisis of 2008, and suggest that a regulatory system is established to decrease bank sizes and remove the shadow banking system in order to avoid a similar devaluation in the future.

There were many causes and consequences of the 2008 economic meltdown from different groups. Parties such as banks, individuals, and the government were all responsible for causing the economic meltdown. One factor was an overdependence on credit (Andrews 2009:1). In addition, struggling businesses relying on the banks also contributed to the 2008 economic meltdown (Gross 2009:18). Also, lax government policies like the Community Reinvestment Act (CRA) contributed to the 2008 economic crisis (Gross 2009:30-31). These were the factors that led to the 2008 economic meltdown.

Over the past several decades the world has seen what the culprits are with financial instability. From the Great Depression, to the housing bubble crisis of 2008, the economy suffers from many fundamental problems that damper our financial situation. In The Bankers’ New Clothes, Anat Admati and Martin Hellwig explain the struggles of banking regulation in order to gain a better understanding of financial intermediation and how it affects us. Admati and Hellwig provide a forceful and accessible analysis of the recent financial crisis and also offer proposals on how to prevent any future financial failures. The way they achieve this is by engaging us, in plain language, by cutting through the confusion and acknowledging the issues of banking.

The Global Financial crisis, which is believed to have begun during July 2007 due to a credit crunch was caused because there was a large liquidity crisis due to lack of confidence amongst the US investors in judging the value of the subprime mortgages. (Davies, 2014)

Understanding the Impact of the Global Financial Crisis: An Examination of One Company's Performance Indicators

The financial crisis, beginning in 2007, negatively impacted the stability of financial institutions and markets across the world. While there are many speculative causes of the financial crisis, dealings in subprime mortgages are considered the biggest culprit. As a result, those involved in subprime mortgages, such as lenders, investment banks, credit rating agencies and securities investors were among the first to feel the crisis’ ramifications. Moreover, adjustments made to lending stipulations and interest rates produced a housing bubble within the United States priming the market for an inevitable collapse. Once the housing bubble burst, the risk associated with subprime

The recent Global Financial Crisis (GFC) initially began with the collapse of credits and financial markets, which caused by the sub-prime mortgage crisis in the US in 2007. The sub-prime mortgages were given to high-risk lenders (with bad credit history) who were in danger of defaulting, which eventually caused a global credit crunch, where the banks were unwilling to lend to each other. In October 2008, the collapse of the major financial institutions and the crash of stock markets marked the peak of this global economic slowdown (Euromonitor International, 2008).

This essay will discuss the Origin of the Global financial crisis of 2008-10 and its impact on the financial health of the institutions. The main reason of the Global financial crisis was primarily Sub-Prime mortgages by the banks. The major U.S banks were involved in