The Philippines amidst the Asian Financial Crisis And the Global financial Crisis
I. Introduction
Since before, there had been many financial crisis happened, for instance the Great depression of the 1930’s, the U.S recession of 2001 and other financial crisis. All of the country in the world has felt how severely devastating a financial crisis is, on how much problem does it give to an economy, even though the most powerful economies that produce about a quarter of the world output like the America have experienced a financial crisis. Like here in the Philippines, it was affected by the 1997 Asian financial crisis and the latest was the global financial crisis. During those times the Philippines undergo several problems that any country
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But in 2006 the interest rates started to increase and housing prices decreases in parts of the United States, which makes refinancing difficult causing much foreclosure of properties in the United States when the housing prices decrease, foreign investors that invested in the subprime mortgages or mortgage-backed securities and collateralized debt obligations have suffered huge amount of losses. Creating a cycle in foreign investors and financial institution in the United States, could no longer sell houses and having bankruptcy of banks like the Lehman Brothers declared bankruptcy, thus making a deficit of liquidity in the United States banking system resulting of large financial institution to bail out banks by the government which have affected the decrease of the stock market all over the world. (http://www.wikipedia.com)
II. Discussion.
The Asian Financial Crisis in the Philippines
During the time of the Asian Financial Crisis the Philippines did not only face the Asian financial crisis, but also an episode of El Nino which brought severe drought in the region. Causing a depreciation of the peso 37.20/$ from 27.4 /$. “Macroeconomic indicators at the end of the year did not reflect the impact of the twin crises, thereby creating the impression that the financial crisis did not severely affect the Philippines” (Khandkler, 2002, p 223) but the effect of the Asian financial crisis on the
During the early 2000 's, the United States housing market experienced growth at an unprecedented rate, leading to historical highs in home ownership. This surge in home buying was the result of multiple illusory financial circumstances which reduced the apparent risk of both lending and receiving loans. However, in 2007, when the upward trend in home values could no longer continue and began to reverse itself, homeowners found themselves owing more than the value of their properties, a trend which lent itself to increased defaults and foreclosures, further reducing the value of homes in a vicious, self-perpetuating cycle. The 2008 crash of the near-$7-billion housing industry dragged down the entire U.S. economy, and by extension, the global economy, with it, therefore having a large part in triggering the global recession of 2008-2012.
Because of this downfall of the housing market, the U.S. economy fell along with other markets across the country. Homeowners had mortgages higher than what their homes were valued at, the decline in housing prices caused many people to default on their mortgages which caused the values of mortgage backed securities and CDO’s to collapse, leaving banks and their financial institutions holding those securities with a lower value of
Recently, the U.S. and world economy experienced a global economic recession in 2008 that was considered by some to be the worst economic crisis to plague the U.S., and ultimately the rest of the world, since the Great Depression of the 1930s. This global economic recession is popularly thought to be a result of the housing bubble crash in the U.S. as a result of risky
In the era of intensive globalisation financial crisis of USA followed by crises in other countries as well, starting from
After peaking in the United States in 2006, the global housing bubble collapse. On the national level, home prices in the United States have dropped by almost 40% according to the Case-Schiller home price Index from 2006 peak to mid 2009. Securities with risk exposure to housing market plummeted, causing great damage to financial institutions across the globe. Stock markets all over the world suffered large drops in 2008 and early 2009 as questions arose regarding the solvency of major financial institutions and liquidity in the
We should not ignore the interdependence of markets when it comes to goods and services. The 2008 recession in the United States of America has affected numerous economies all over the world, including the Philippines. America is a superpower; therefore we acknowledge the domino-effect she creates whenever she takes her downfall.
In 2008 the United States experienced the worst financial crisis since the Great Depression in the 1930s, primarily because of the bursting of the U.S. housing bubble and increasing default rates on subprime mortgages which caused the price of house to increase once a high amount of loans were given out by banks to potential homeowners. Securitization played a big role in this because of how risky the regulations are and the giant corporate companies that are truly fluctuating and controlling the market. At the peak of the financial crisis new specialized mortgage lenders and securitizers came along unrestricted by government regulations which resulted in an extreme number of foreclosures and the stock market to plummet.
The current economic-financial crisis was indeed caused by the simultaneous occurrence of events in different parts of the world that all had a negative effect. These events are subtly different and therefore it is common that only one event is held responsible for the crisis. In reality, the world economy became critical due to the mix of four major events: 1) the unrestrained greed of financiers in the U.S. and U.K., which transformed bad mortgages into toxic financial assets 2) the habit of getting deeply indebted in the U.S. and U.K., 3) the excessive liquidity in Europe, 4) the real estate bubble in the U.S. and some European countries (Thomas, 2011) At the beginning of the financial collapse in the United States, many commentators, among which was the President of the Federal Reserve, hastily affirmed that the situation would only affect the United States and at most, the UK, where the banks,
It is undeniable that the political has a great impact on the finance crisis in 2008. In this journal, the writers have brought up the practical reasons causing the biggest recession in the world. However, the root cause of the financial crisis stemming from the credit crisis and real estate in America. Real estate bubble increasingly growing had put the housing market in the USA and many European countries in danger. Cheap credit was the starting point for the real estate bubble, following by the imbalance of monetary policy of the U.S. Federal Reserve. Furthermore in 2007, a number of American credit institutions such as New Century Financial Corporation had processed procedures for bankruptcy. Some are leaving the depreciation of its shares
Housing prices stopped rising in 2007. One of the ramifications was that those who rely on re-financing to pay off their previous loans were not able to re-finance any more. People started to default. This entailed big uncertainty the financial market mainly because it became an impossible task to
In 2007, there was a Great Recession happened in the United States. The Great Recession was a worst financial crisis since the Great Depression happened on 1930s. This financial crisis spread to the whole world such as Asia, Europe, and Africa. The Great Recession caused the world economy dramatically going to the downturn. A lot of the businesses have to bankrupt. The major reasons that effect the Great Recession is housing bubble. Before the recession, the house market increase the price of the house cause boom in housing, so many people going to borrow the loans from the banks to purchase the houses. Therefore, many borrowers decide to accept high-risk debt because they think they would able to pay off quickly. However, when the interest rates increase, the price of housing start decrease, which cause the worst housing market crash. According to CNN Money,
“The 2007-8 stock market crash was largely due to widespread defaulting on subprime mortgages.” (The 2007-08 Financial crisis in review) In other words, towards the end of 2006, almost all borrowers defaulted. Instead of getting money, lenders got houses back, and put them again on sale. With the huge number of houses on the market, the supply was massively high, while the demand was low. Hence, the bubbles started bursting and the prices of the houses started declining
The housing market crash, which broke out in the United States in 2007, was caused by high risk subprime mortgages. The subprime mortgage crisis resulted in a sudden reduction in money and credit availability from banks and other lending institutions, which was referred to as a “credit crunch.” The “credit crunch” and its effect spread across the United States and further on to other countries across the world. The “credit crunch” caused a collapse in the housing markets, stock markets and major financial institutions across the globe.
The new lackadaisical lending requirements and low interest rates drove housing prices higher, which only made the mortgage backed securities and CDOs seem like an even better investment. Now consider the housing market which had become a housing bubble, which had now burst, and now people could not pay for their incredibly expensive houses or keep up with their ballooning mortgage payments. Borrowers started defaulting, which put more houses back on the market for sale. But there were not any buyers. Supply was up, demand was down, and home prices started collapsing. As prices fell, some borrowers suddenly had a mortgage for way more than their home was currently worth and some stopped paying. That led to more defaults, pushing prices down further. As this was happening, the big financial institutions stopped buying sub-prime mortgages and sub-prime lenders were getting stuck with bad loans. By 2007, some big lenders had declared bankruptcy. The problems spread to the big investors, who had poured money into the mortgage backed securities and CDOs. They started losing money on their investments. All these of these financial instruments resulted in an incredibly complicated web of assets, liabilities, and risks. So that when things went bad, they went bad for the entire financial system. Some major financial players declared bankruptcy and others were forced into mergers, or needed
Housing prices in the United States rose steadily after the World War II. Although some research indicated that the financial crisis started in the US housing market, the main cause of the financial crisis between 2007 and 2009 was actually the combination of housing bubble and credit boom. The banks created so much loan that pushed the housing price to the peak. As the bank lend out a huge amount of money, the level of individual debt also rose along with the housing price. Since the debt rose faster than people’s income, people were unable to repay their loan and bank found themselves were in danger. As this showed a signal for people, people withdrew money from the banks they considered as “safe” before, and increased the “haircuts” on repos and difficulties experienced by commercial paper issuers. This caused the short term funding market in the shadow banking system appeared a