Question

Describe the events of the recent financial crisis 2008 and compare it to the East Asian crisis in 250 words.

Answer 1

Financial crisis of 2008 is the result of events that came up cumulatively with the fall of big banking institutions and market. It happened due to the prevalence of subprime lending, trading of financial derivatives as collateralized debt obligations (CDOs) and lax policies of the capital market. A greed to earn more on the part of investment bankers and financial institutions also played a role for the outburst of the crisis. To gain more from the mortgage business of home, mortgage was passed from broker to the investment bankers and from investment bankers to the financial institutions, banks and hedge funds as collateralized debt obligation. To accelerate the revenue making process, policy shifted to give loans to people with poor background from the people with sound background a case of subprime lending. A case of subprime lending. As a result, credit default took place, supply of homes increased and the value of the homes came down. Now, the investment bankers were holding homes with little value. After seeing this, honest homeowners refused to pay high EMIs since the value of their home had come down. It made the whole financial system into the crisis.
In contrast to the financial crisis of 2008, Asian financial crisis took place due to the failure of the government and it became bankrupt leading to the huge fall in the value of currency. Consequently, the capital market plummeted and economy went into the crisis. Such crisis was spread in different Asian countries. So, financial crisis of 2008 was the institutional failure and took place due to inactivity of the regulatory bodies such as FTC and Federal Reserve as well as pervasive investment behavior of the banking system. But, the Asian crisis was the result of government failure and poor regulatory framework. It is the reason that Asian countries such as Thailand needed support of other world institutions. Though, it was not the case in financial crisis of 2008 where the government came up with the big stimulus package for the industry.