Overview Of The Recent Financial Crisis In The Us

1705 words - 7 pages

1. Introduction
The financial crisis started in the USA because of subprime mortgage crisis in 2007. As a consequence of it, a credit crunch was originated and it quickly spread from the real state sector to other sectors, and furthermore, from USA to other countries. This caused a series of financial and economic crises like the collapse of housing markets in Europe, the global stock markets, global financial systems and markets, along with a lot of large banks and financial institutions, as (Sun, et al., 2011) explained.
The financial crisis from 2007 has caused the greatest global economy recession since the Great Depression and also the European sovereign debt crisis. The consequences and cost are enormous. Due to this fact, explanations and responsibilities for financial crisis are searched so that the role of corporate governance and financial engineering is set on the spotlight.
The financial crisis has been said to be a case of financial engineering and corporate governance gone wrong. In this paper I will discuss this statement and demonstrate that wrong financial engineering practice and corporate governance effectively caused, or at least in part, the financial crisis.
2. The role of Financial Engineering in the Crisis
The origins of the crisis have been discussed and a number of different causes have been pointed out. According to (Sun, et al., 2011), the roots of the crisis have been identified to be in the preference for deregulating financial institutions and markets, which resulted in the prompt growth of securitization.
Financial engineering allowed a great burst of global derivatives setting the context in which major financial institutions thoughtlessly disregarded risk management and corporate governance. In this context, the rating agencies such as Standard & Poor’s, Moody’s or Fitch in an exercise of irresponsibility encouraged risks instead of managing them. Executive incentives also took part in boosting risk, which illustrates as well the irresponsibility of the companies.
However, the causes of the global financial crisis are rather complicated. On 15 November 2008, (Leaders of G20, 2008) declared that the financial crisis was caused by:
• Market participants seeking higher yields without an adequate appreciation of the risks and failing to exercise proper due diligence.
• Weak underwriting standards, unsound risk management practices, increasingly complex and opaque financial products, and consequent excessive leverage combined to create vulnerabilities in the system.
• Policy-makers, regulators and supervisors, in some advanced countries, did not adequately appreciate and address the risks building up in financial markets, keep pace with financial innovation, or take into account the systemic ramifications of domestic regulatory actions.
• Underlying factors such as inconsistent and insufficiently coordinated macroeconomic policies and inadequate structural reforms which led to unsustainable global macroeconomic...

Find Another Essay On Overview of the Recent Financial Crisis in the US

Repercussions of the Financial Crisis Essay

960 words - 4 pages , eventually leading to the current crisis. The government encouraged house ownership. Houses were selling like hot cakes. The bankers, in a bid to attract more loans to be taken, further decreased the already-low interest rates for loans. This way, they could earn more money. In short, greed was the start of this whole financial crisis. The greedy bankers wanted more profit, so they did not consider the financial ability of the people who loaned the

An overview on the roots of Pacifism and it's history in recent times.

1054 words - 4 pages PacifismThe wise ways of pacifism were brought about with the assistance of religious beliefs and strong people such as Martin Luther King Jr., Mahatma Gandhi, and Henry David Thoreau. In the times of today, pacifism has been proven to be a very effective way of protest, and it should always end without any casualties for its cause.The roots of pacifism in modern times are traced back to religion with groups such as the Quakers. From 1681 to

The IMF’s Role in Financial Crisis

2606 words - 10 pages The IMF’s role in financial crisis Introduction In this age of change, the international financial is progressing promptly on various fronts, such as the International Monetary Fund (IMF) play a pivotal role in international financial system. Yet at the same time, many criticisms point out that IMF are not efficient enough to react to settle the problems that have accompanied with this trend. This issue has drawn widespread attention in recent

The International Financial Crisis in 1929

1232 words - 5 pages The International Financial Crisis in 1929 Throughout the 1920's in Britain there were economic problems. Unemployment was increasing; therefore there was low domestic demand and large amounts of poverty. Markets were also being lost abroad, leading to a decrease in trade. However in 1929-31 these problems reached crisis point, when in 1929 The Wall Street Crash called for an end of American Loans to Britain, and the re

The 2008 Financial Crisis

1529 words - 6 pages introduction The 2008 financial crisis led to a sharp increase in mortgage foreclosures primarily subprime leading to a collapse in several mortgage lenders. Recurrent foreclosures and the harms of subprime mortgages were caused by loose lending practices, housing bubble, low interest rates and extreme risk taking (Zandi, 2008). Additionally, expert analysis on the 2008 financial crisis assert that the cause was also due to erroneous monetary

The Argentine Financial Crisis

2460 words - 10 pages period was marred with rampant inflation rates and job loss, scenes of malnutrition among youth, and families scouring for anything that could be sold, such as cardboard, glass, and metal. Many of us are aware of the Argentine financial crisis, and understand little of what it was about. What most people tend not to know is precisely what caused the incident, what has happened in South America since 2001, and how it has affected the global community

The Global Financial Crisis

618 words - 2 pages the worst financial crisis since the Great Depression of 1930. Called “Occupy Wall Street”, the movement drew the attention of the media the world over. But what are the causes of the global financial crisis? How did we, or our governments, let it happen? The protesters seem to have found an answer. They blame but one thing: greed. According to protesters in London, it is the fault of the banking industry. Worse yet they blame their government

The Current Financial Crisis

856 words - 3 pages creating growth. When people lose confidence in the economy this activity freezes or weakens, consequently, asset prices decline, unemployment rises and companies default as was the case of Lehman Brothers in 2008. The freezing of the flow of money is a financial crisis. Today, the global flow of money is at risk. This risk is a result of Debt and Credit imbalances: "Persistent trade surpluses in some countries and deficits in others did not

The Global Financial Crisis

2812 words - 11 pages other hand if people want to check account at Citibank or Wels Fargo, they check account because this is an asset this is not a security. “Financial intermediary a financial firm, such as a bank, that borrows funds from savers and ends them to borrowers” (O’BRIEN, 2011). The worldwide financial crisis brew for a while, actually happening to confirm its consequence in the middle of 2007, approximately the globe stock markets have fallen, big financial

The Global Financial Crisis

1000 words - 4 pages The global financial crisis has brought wide-ranging changes to consumer spending behaviour and consumption patterns throughout the world with the economic downturn impacting on the spending and purchasing power of people. The findings of a study conducted by Booz and Company in 2008 on consumer spending behaviour revealed that, firstly, the unprecedented confluence of the dramatic rise in oil prices, the substantial deterioration of housing

The Background of Asian financial Crisis

5724 words - 23 pages Financial Management. The reasons for my chose are because I am interest in these topics, and I am very little understanding of the financial crisis, I want to know more about the Asian financial crisis in 1997. Also it is relative with my subject; these topics are full of challenges, temptations and knowledge. In addition, it is relevant my future career, know more about it is good for my future job.The aims of this report are through the research

Similar Essays

An Overview Of The Argentine Financial Crisis

1929 words - 8 pages hoped that the U.S. trade deficit would cause the dollar to decline into the 2000s while, in reality, the dollar continued to strengthen in 2000 and 2001 (Feldstein, 2002). The conventional explanation of the financial crisis in Argentina indicates that the observance of convertibility, or peg of the Argentine peso to the dollar, caused the peso to be overvalued relative to its trading partners when the US dollar experienced appreciation during

• Explain How The Eu And The Us Coped With The Recent Financial Crisis

764 words - 3 pages • Explain how the EU and the US coped with the recent financial crisis. During the last several months we have witnessed one of the most trying times for financial markets in several decades, perhaps since the 1930's Great Depression. The originators of lower quality mortgages in the United States had strong incentives to meet a constant and, indeed, increasing demand for securitized products of some form or another. There

The Effect Of Recent Financial Crisis And Regulatory Implications In Asia

1914 words - 8 pages other countries. The crisis was triggered by a liquidity shortfall in United States banking system and resulted to the collapse of financial institutions. Asia is one major continent in which the recent financial crisis had spread. The impact of the crisis had far reaching effects on the economy of Asia than many people had anticipated. Historically, the economy of many Asian countries was extremely strong compared to that of most advanced

Financial Crisis Of The 1980s Essay

1094 words - 4 pages The financial crisis of 2008 and 2009 is considered by others as the worst financial crisis since the Great depression of 1930. However there were other financial crisis which had happened after the Great depression which were equally disastrous. The one that comes in mind was the financial crisis of the 1980s and early 1990s. It is always overlook by others because of the 2008 credit crunch which happens to be the recent one. It became known