Question

3.   Economic globalization has led to an increasingly global economy without borders. This has created unprecedented wealth in the world, but also unprecedented risk because local economic crises can easily turn into global crises. This is precisely what happened in 2008/2009 when the American real estate crash created a global recession. Illustrate the history of this crisis: what caused it and how did it become global? Are there any proposals by governments, IGOs, NGOs, or academics, for how this kind of global economic contagion might be avoided in the future?

Answer 1

Reason

During 2000s there was a boom in the housing sector in the US, according to which people took loans to develop the housing sector in a very big level for which toxic mortgage was used to take loan from financial system of USA and European Union country in this market. Many US investors had invested in this sector like banks , non banking financing company. Without taking rule and regulations In count and dramatic failure in corporate governance , many financial firms taking too much risk recklessly. policy makers was also contribute as they have not take effective policy action to avoid this and breach of ethics in corporate management .

Around 2007-08, the demand in the housing sector declined and their prices fall .large amounts were loaned by consumers and they were not able to repay, causing it to emerge as a massive crisis globally and the whole World's economy is almost in recession ,because investor was from all over the world and globalisation is connected all countries economy with each others as well and which hamper trade and production of goods and services , thus increasing unemployment and decrease demand caused recession.

Yes ngo, government and academic have such plan to Avoid situation by making financial system strong and Making rule and regulations further strong like making some systematic important financial or banking sytem on the line of basel guidelines of international banking of settlement to fight with such situation before and during and after occurring of them.

Avoid toxic mortgage use to providing loans and using secured asset as Colletaral .

taking good monetary policy and fiscal policy action at suitable time and make these policy flexible enough, economic freedom of decision making etc.. These suggestions may helpful to contains such situation.