Global Financial Crisis

6130 Words Nov 13th, 2008 25 Pages
|GLOBAL FINANCIAL CRISIS |November 12 |
| |2008 |
| | |

PART 2

Introduction

The stock price plunge and the severe credit crunch we are watching today in the global financial markets are byproducts of the developments in the US six years ago. In late 2001, fears of global terror attacks after 9/11 shook an already
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The resulting spiral underlay a developing financial crisis.

Initially the companies affected were those directly involved in home construction and mortgage lending such as Northern Rock and Countrywide Financial. Financial institutions which had engaged in the securitization of mortgages such as Bear Stearns, Indy Mac Bank, and Fannie Mae and Freddie Mac, then fell prey.

It then began to affect the general availability of credit to non-housing related businesses and to larger financial institutions not directly connected with mortgage lending. At the heart of many of these institution 's portfolios were investments whose assets had been derived from bundled home mortgages. Exposure to these mortgage-backed securities, or to the credit derivatives used to insure them against failure, threatened an increasing number of firms such as Lehman Brothers, AIG, Merrill Lynch, and HBOS.

Development of the global financial crisis

The development of the global financial crisis is a result of a number of complicated and interrelated factors. Starting with the downturn of the housing bubble in the US economy, the fall in the financial stability in the US, and the rising commodity prices, all of the factors, in one way or other, has initiated the crisis. As stated by the United Nation in its Conference on Trade and Development, and in its Trade and Development Report 2008, the major factors for the crisis are:

1. The bursting of the housing
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