What Are The Weaknesses Faced During The Financial Crisis

The Troika, made up of the International Monetary Fund, European Commissions and the European Central Bank have the most to lose in this debt crisis as they own 78% of Greek debt. With so much to lose we have seen European “bailout” agreements that mostly front the Greek government more money coupled with crippling austerity in an effort to “rebuild” the economy. Austerity discourages growth as it cuts the spending of the government who is by far the biggest spender in the economy. The effects of austerity can be devastating, but the true effects are often hidden beneath the messages we get from mainstream news sources. The stereotype of the Greek people as lazy and tax evading has desensitized the public and has made austerity seem like more of a sensible option. The media messages have made strict austerity measures seem justified and in effect have hegemozined the Greek people.

The financial crisis in America had spread to Europe. Banks in the UK bear the greatest impact from the credit crisis sub-prime housing loans in the U.S. For example, Northern Rock Bank had a bad debt account of up to 191.6 billion U.S. dollars in July 2008 and the Bank of England had to pump 27 billion pounds to rescue Northern Rock Bank. At the end of September 2008, there were some other big banks in Europe such as Dexia and Hypo Real Estate falling in the crisis and these banks were rescured by the governements throught financial bailout. (Alexander, 2008)

“Since 2007 to mid 2009, global financial markets and systems have been in the grip of the worst financial crisis since the depression era of the late 1920s. Major Banks in the U.S., the U.K. and Europe have collapsed and been bailed out by state aid”. (Valdez and Molyneux, 2010) Identify the main macroeconomic and microeconomic causes that resulted in the above-mentioned crisis and make an assessment of the success or otherwise of the actions taken by the U.K government to resolve the problem.

Over the past few years of global economic instability, most governments have struggled to find adequate funding to continue providing the much-needed resources to the members of their state. Consequently, this has translated to significant budget cuts and the introduction of strict austerity measures at unprecedented levels.

Austerity works on the principle of decreasing government spending and increasing taxes; as a result, the deficit can be reduced and the country can be back on track financially. But at the same time it does not make sense that by decreasing employment availability, investments in science and technology, and helping different groups of society build their cores, will help all of us achieve a sustainable economy.

before had the Eurozone been presented with such a large financial crisis that could undermine

Upon analyzing the root causes of the financial crisis, I believe that the crisis could have been prevented by assuming the possibility it occuring, rather than projecting it as a far-fetched phenomenon. This is so as every aspect of the crisis, ranging from real estate agents selling clients homes they could not afford to investors partaking in questionable hedging activities was the result of individuals assuming that they could generate a profit without considering the consequences of their actions. Economist Phillip Das, as cited in a 2009 report by the Munich Personal RePec Archive elaborates on this theory by stating that “[f]inancial risks, particularly credit risks, are no longer borne by banks. They are increasingly moved

One of the principal functions of financial oversight authorities in achieving a safer, more flexible, and more stable monetary and financial system is to regulate and supervise various financial entities. But following the crisis of 2007, regulatory authorities in the whole world were engaged in a fundamental reconsideration of how they approach financial regulation and supervision. Performing these functions through micro- prudential regulation and supervision of banks, holding companies, their affiliates and other entities, including nonbank financial companies, proved to be insufficient to ensure and maintain financial stability of a country, union or the world as a whole.

The roots of Greece’s economic problems extend deep down into the recesses of history. After the government dropped the drachma for the euro in 2001, the economy started to grow by an average of 4% annually, almost twice the European Union average. Interest rates were low, unemployment was dropping, and trade was at an all-time high. However, these promising indicators masked horrible fiscal governance, growing government debt and declining current account balances. Greece was banking on the rapid economic growth to build upwards on highly unstable foundations. In 2008, the inevitable happened – the Greek debt crisis.

Blyth defines austerity as “the ‘common sense’ on how to pay for the massive increase in public debt caused by the financial crisis”, which comes primarily through the elimination of government services. People knowingly take on debt with the intention to then pay it off-- before the financial crisis of 2008 people took on debt to pay bills and banks took on debt to make money by leveraging. When the crisis hit, the government felt the banks were “too big to fail” (because a crucial part of economic activity in the US is tied up in liquidity of the largest banks) and bailed them out. When a person’s debt becomes too high they pay it down with income rather than continuing to spend and pump money into the economy, or “deleveraging”. In

The current financial crisis which spread in 2008 had influenced the global economy in different aspects such as the GDP, labour markets, government policy(Read 2009 ). Considering the causes of the financial crisis, Greenberger, who was the director of the Division of the trading and Marketing of CFTC demonstrated that lack of information transparency was the main cause of the financial crisis. This essay would identify the lack of transparency in the securities markets led to the moral hazard which finally result in the illiquidity and disaster in the financial market.

Since the 1970s the EU has had solvency requirements in place which require a regulatory capital to protect against any unforeseen circumstances. EU states agreed in the 1990s that a review should be put in place to reform and improve standards. Solvency I was the result of this review (Lloyd’s, (no date)).

Austerity in simple terms is basically a policy of making several cuts like reducing domestic wages in order to balance the budget which would remove debt and restore competitiveness within that country. “Austerity is a form of voluntary deflation in which the economy adjusts through the reduction of wages, prices and public spending to restore a country’s competitiveness, which is best achieved by cutting the state’s budget, debts and deficits” (Blyth, 2015,p.2). He gives various examples of countries that have had experiences of austerity such as Denmark, Sweden, Germany, France and America among several others. “For our purposes here, we need only note that the US economy got worse each time austerity was applied, first in 1193 and again

The author conflates the austere approach with liberal economic policies that distrust that state and see a very limited role in it in regulating a market economy. The strongest element of section two, is the ‘natural history’ of austerity, which considers several examples and demonstrates that the role played by contractionary fiscal policies is overstated. The experiences of austerity in the United Kingdom and United States in the 1920’s to 1930’s and Denmark and Ireland in the 1980’s are considered in the context of the REBLL countries today (Romania, Estonia, Bulgaria, Latvia and

Although banking systems have healed significantly since the financial crisis, there remains considerable variation on a cross-border basis in the way how banks have dealt with legacy issues. Notably, those banking systems that were exposed as being weakly capitalised and highly leveraged in the period leading up to the financial crisis have subsequently reduced their share in total cross-border lending activity in a significant way. In particular, Eurozone banks have reduced their cross-