Global Financial Crisis: How and Why?
The world
financial system is now undergoing a global economic crisis of staggering
proportions. Several of world’s best managed financial institutions went
bankrupt and rests are dying for bail out. India’s second largest airline
company Kingfisher can be the best example, which is dying for bail out.
The global economic crisis commonly believed to have begun in
July 2007 with the credit crunch, when a loss of confidence by US investors in
the value of sub-prime mortgages caused a liquidity crisis. This, in turn,
resulted in the US Federal Bank injecting a large amount of capital into
financial markets. By September 2008, the crisis had worsened as stock markets
around the globe crashed and became highly volatile. Consumer confidence hit
rock bottom as everyone tightened his/her belts in fear of what could lie
ahead.
One of the main culprits that is often pointed to as one of
the main triggers of the global financial crisis are the mortgage derivative
products, where risky mortgages were packaged with more traditionally secure
mortgages and sold to corporate investors and other banks as secure investment
products.
Widespread selling of mortgages across the United States and
the world to people who weren't really able to afford the repayments for the
borrowing is also a major cause of this financial crisis.
Government rules & regulation is also responsible for the
global financial crisis, and it is certainly the case that if there was a more
proactive action have been taken to the financial industry, especially how the
mortgages were verified, then it may have prevented the crisis from becoming as
wide ranging as it is.
However, my mind says that globalization itself is the main
cause of global financial crisis, as I have mentioned that financial crisis
started from America but spread its wing all over the globe. Globalization has taught us
just how interconnected we all are, similar to cells in a human body. We as
human beings are now in a similar situation whereby a crisis in the US is being
felt all over the globe in seemingly every continent and country.
The collapse of Lehman Brothers on September 14, 2008 marked
the beginning of a new phase in the global financial crisis. Governments around
the world struggled to rescue giant financial institutions as the fallout from
the housing and stock market collapse worsened.
The new emerging Asian Tiger that is India has also burnt its
fingers from the crisis. Historically well-known India business houses like
Tata, Ambani, and Birla and many other including small business men and even
farmers got affected due to global economic tsunami.
The global financial crisis will adversely affect the growth
of every nation either developed or developing and its citizens for years to
come. The financial infrastructure of our economy will not be able to rebuild
itself as quickly as it disintegrated, the economy will have a tough time
bouncing back.
"It's a recession when your neighbor loses his job; it's
a depression when you lose yours," said Harry S. Truman on the Great
Depression. The current recession has already left core’s of people around the
globe in fiscal jeopardy and uncertain about the future, but what about you and
me? We may not be living on the streets, yet, but if the world does not unite
and solve the financial crisis, what will stop this great recession from
expanding into another Great Depression? Financial systems around the world are
in jeopardy and while our government is hard at work to solve our own economic
crises, it is important that our government works with other nations in order
to collectively and efficiently solve this global financial crisis.
