Excerpt from Essay:
Global Financial Crisis
There were many causes for the global financial crisis of 2007-2009. Baily, Litan and Johnson (2008) argue that there are numerous adding to factors, such as the perception of a low risk U. T. housing market, securitization of the housing industry, credit rating companies, and the spread of these securities to banking institutions around the world. The principal contagion came from the United States, from 2007, nevertheless there were contributing factors in lots of European countries as well.
housing market entered a bubble state, with rapidly increasing prices. This was the result of becomes the way that mortgages were financed, delivering more and riskier consumers in to the housing market. Therefore fuelled investors. Banks could securitize risk from the enclosure marketing. In complex orders they were capable to offload most of the risk on other finance institutions around the world. Credit rating agencies, lacking a clear understanding of the products, scored them since secure purchases. These “secure” investments offered returns much higher than opportunities of related “security, inches but of course we were holding not as secure as their rankings suggested. Yet , they had recognition investment products for banking companies around the world as the result of their apparent security. This is what made the problems global in nature, instead of just an American problem – banks worldwide were shopping for these securities. Baily ainsi que al. (2008) noted that risk management was poor. In countries where banks exercise proper risikomanagement – Australia and Canada notably – the economic crisis was no place near since intense.
Tridico (2012) points out what happened subsequent. With wrinkled income distribution, the increase in consumer credit displayed by the new mortgage market in the U. S. was unsustainable, and inevitably that began to failure shortly after the U. S i9000. Federal Book increased interest rates – most mortgages had been on suspended terms with low initial rates. This kind of resulted in a dramatic increase in mortgage defaults, threatening the supposedly protected mortgage-backed securities. Banks greatly invested in these securities, including Lehman Brothers, went bankrupt, causing a mass crisis of self-confidence in the complete financial system, and
