Question

I want an opion abou the global financial crisis

Briefly, explain what have led to this global financial crisis? And what are the main consequences of it?

Be sure to have the following elements in your answer:

1- Define the problem.

2- Use a technique (it could be a statistical or descriptive method), which could be done with the help of using some data or figures).

3- Provide your own interpretation of the main factor that led to the crisis.

4- Give an example on how it was solved. And what is your opinion on this solution?

( within 2 pages + references )

Answer 1

The global crisis is nothing but, the great recession that took place in 2007 till 2010 in the United States. The financial crisis of U.S. affected the economic condition not only in America but also had a huge impact on the economies of the other countries. The instability in the financial condition led to the major crisis.

The main factor which caused global crisis was deregulation in financial industry. The banks had used their deposits for further investments in derivatives and other complex assets. The banks thought that they could compete with the other foreign banks, and invested in low-risk securities to protect their customers. In the same year Commodity Futures Modernisation Act exempted swaps and other derivatives from regulation.

Market instability led to the financial crisis, slow down of economic growth because of creating new lines of credit. But at that time, the credit was unchecked and it went out of control. Many people took loans and the interest rates went up, they were unable to repay the loans and were debt trapped.

The major investment bank Lehman Brothers got bankrupt as the government refused to aid them with funds. This had led to the great recession which affected U.S., Europe, and across the Asia. Many such companies and banks got financial help form the government but ultimately many investment banks got bankrupt.

Many other consequences like the mismanagement of risks, the sudden increase in the level of interest rates, and the deregulation of the financial system.

Perhaps the most important factor which led to the crisis was the human psychology and the risk perceptions. When it is good time, risk perceptions delines. People think or satisfy themselves that good time will last forever, but in reality, when the next phase comes, risk aversion increases again. So, the regulations and the formations of the policies should be done on the required conditions.