The Global Financial Tsunami During 2007-2009

The financial crisis from2007 to 2008 is considered the worst financial crisis since the Great Depression of the 1920s and destroyed the U.S. economy severely. It led the housing prices fell 31.8%, the unemployment rate rose a peak of 10% in the United States. Especially the subprime market, began defaulting on their mortgage. Housing industry had collapsed. This crisis was not an accident, it caused by varies of factors. The unregulated securitization system, the US government deregulation, poor monetary policies, the irresponsibility of 3 rating agencies, the massed shadow banking system and so on. From my view, the unregulated private label mortgages securitization is the main contribute factor which led the global financial crisis in 2008.

Two phenomena- hindsight bias and judgmental overconfidence- illustrate why we can’t rely solely on intuition and common sense.

The financial crisis of 2007–2008, also known as the Global Financial Crisis and 2008 financial crisis, is considered by some economists such as Nouriel Roubini, professor of economics and international business at New York University, Kenneth Rogoff, professor of economics and public policy at Harvard University, and Nariman Behravesh, chief economist and executive vice president for IHS Global Insight, to have been the worst financial crisis since the Great Depression of the 1930s. All of them agreed that this is a “one in fifty years event”, however the latest Great Recession is not a typical cyclical recession of the World Economy and no doubt will last for more that usual two years (Business Wire, Reuters). The crisis played a significant role in the failure of key businesses, declines in consumer wealth estimated in trillions of U.S. dollars, and a downturn in economic activity leading to the 2008–2012 global recession and contributing to the European sovereign-debt crisis. (M. N. Baily, D. J. Elliott, 2009). So what are the cаuses of this crisis? Mаny factors dirеctly and indirectly caused the Great Recession, with expеrts plаcing different weights upon pаrticular causes. Major cаuses of the initial sub-prime mortgage crisis and following recession include: Internаtional trade imbalances and tax lending stаndards contributing to high levels of dеveloped

The financial crisis in America was a tsunami whose waves of destruction battered the economies of countries all over the world.

Chapter 2 of the text book begins with an exercise designed to test the reader’s knowledge. The reader is to have a bounded range where a 98% confidence level is reached. I failed miserably in this exercise, which is probably why the chapter led with it. Bazerman writes that overconfidence is “the most robust finding in the psychology of judgment.” (p. 14) It is appears to be an innate characteristic for much of the population. Overconfidence has been studied by psychologists and three characteristics of overconfidence commonly appear: overprecision, overestimation, and overplacement. I am glad to know that I am a part of much of the population.

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

In 2008 the world experienced one of the largest economic crisis, next to the great depression of the 1930’s. The meltdown revealed the instability of the US banking system and led to the bankruptcy of investment firm Leimen brothers, and collapse of worlds largest insurance company AIG, which triggered a global financial crisis. International share prices tumbled, causing 30 million people to become unemployed and doubling the US debt. It was the start of a global recession and it was not an accident.

The collapse of Lehman Brothers, a sprawling global bank, in September 2008 almost brought down the world’s financial system. Considered by many economists to have been the worst financial crisis since the Great depression of the 1930s. Economist Peter Morici coined the term the “The Great Recession” to describe the period. While the causes are still being debated, many ramifications are clear and include the failure of major corporations, large declines in asset values (some estimates put the drop in the trillions of dollars range), substantial government intervention across the globe, and a significant decline in economic activity. Both regulatory and market based solutions have been proposed or executed to attempt to combat the causes and effects of the crisis.

Apparently, the financial crisis that began in August of 2007 were the product of several minor issues such as poor risk controls, too much leverage, and an almost willful blindness to the bubble-like conditions in the housing market but the actual root cause was the collapse of the ethical behavior especially on the part of the top executives of the most financial institutions and the loss of any sense of fiduciary responsibility to the ultimate client.

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)

In the year of 2007 Americans were plagued with a recession that negatively impacted the US economy and it’s citizens. Economic activity slowed down, a downturn in the business cycle occurred, and the amounts of goods and services produced were reduced (Census). Many individuals will take their own opinion on this crisis, and the root cause. The truth is, there are many causes of the 2007 recession: the actions of the banks and their consistent lends on mortgages, the actions of humans and their inability to save and invest, and the unresponsiveness of higher authorities all contributed to this mess in several ways (Thomas, Bill). However, the main causes of the financial crisis are due to the optimism of experts, investor and human behavior, and the theory of evolution.

In this essay, we are trying to look at the factors responsible for the global financial crisis in 2008-09 which started in US and later spread across the world. By now, a lot of studies have been done on the global financial crisis of 2008. We explain briefly the role of the financial engineering which leads to combination of various financial securities, the actual risk of which is not clearly assessed and hence leading to the financial crisis. There were also some serious lapses in regulation and failure of the rating agencies in assessing the risks assumed by the financial products which accentuated the crisis.

According to the work examined in this study the global recession that occurred in 2008 and 2009 was partially a result of the financial industry's failure to be responsible for the decision it made in using financial instruments that were risk and very complex in nature. The culture of corporations were constructed on risk-based rewards instead of rewards that resulted in value for stakeholders. The financial risks that banks took on were not well comprehended by the public or regulators and the mass media also failed to understand the risks that the banks had entered into with certain financial agreements.

The outbreak and spread of the financial crisis of 2007-2008 have caused the most of countries into severe economic difficulties and also created an adverse impact on the global economy. The beginning of the financial crisis is defaults in the subprime mortgage market in the USA. Although the global economy seems to recover since 2009, the impacts of the crisis still affect many countries until now. This essay focuses on the background and impacts of financial crisis, and the learning from the movie The Big Short.

According to Simon et al. (1999), human beings who are overconfident tend to take risky actions that are highly likely to give disappointing outcomes due to