Question

In a short paragraph, briefly describe the underlying vulnerabilities that led to the financial crisis of 2007-2008, and the regulatory changes that have been implemented to avoid a repeat of a similar crisis in the future.

Answer 1

2007 -2008 global financial crisis was the worst economic disaster since the great depression of 1929 and it occurreddespite the Federal Reserve system and Treasury Department's efforts to prevent it.The crisis has been building up slowly .The first sign of crisis occured in 2006 when housing prices started to decline drastically(prices have been increasing during 2000-2005). Apart from this major reason of the crisis include *introduction of interest only loans affordable to subprime borrowers,* increase in default and foreclosure rates beginning in the half of 2006 due to fed's manipulation of interest rates*collapse of investment banks in 2008, and *collapse of stock prices in 2008.The crisis affected virtually all areas including the process of globalisation.ln order to prevent such a crisis from occurring again * we must do financial planning in the most prudent way possible ,* design a more integrated regulatory structure. * implement Structural reform of banking sector and enact fiscal consolidation measures.