This website uses cookies to ensure you have the best experience. Learn more

B) What Were Some Of The Major Causes Of The Recent Global Financial Crisis (Gfc), And What Have Been Some Of The Ongoing Economic Impacts, Either Globally Or Locally In Singapore, Of This Crisis?

3419 words - 14 pages

A period of economic difficulty that consumers and markets are experiencing world-widely is known as global financial crisis (BusinessDictionary, 2015). It occurs when there is an increase in asymmetric information coming from disruptions in financial system that is interrupting the funds from channelling efficiently between savers and households as well as preventing firms from having productive investment opportunities (Mishkin and Eakins, 2012, pp. 204).

The recent global financial crisis began in the year of 2007 and the intensity increased in the subsequent year. Global financial crisis in 2007 happened as result of a number of factors such as government mandated subprime lending, ...view middle of the document...

Low interest rates, together with loosening credit-underwriting standards are able to bring low-income borrowers into the housing market and that will fuel the demand. However, if the interest rates increased and the credit standards have been tightened, it can lessen the demand in the housing market that causes a burst in the housing bubble. In addition, some believed that they are able to make profit through the short-term buying and selling of houses and that further increases the demand of housing. Therefore, when the demand decreases while the supply increases, there will be a drop in prices that can cause the bubble to burst (Mishkin and Eakins, 2012, pp. 211-213).

When the houses of subprime borrowers appreciated in value, they are able to refinance larger loans and this also mean they are less likely to default their loans. However, when housing prices increase, the bad loans that were given to borrowers who were unable to afford the loans were having delays. In which, some of them will make another loan that is against the value of the houses that they own due to the increased prices. Thus, this resulted in the borrowers getting into more debts to pay off the debts they owed. The housing prices had been increasing since recovering from the recession in 2000-2001 until 2006, when the housing pricing started to decrease again. This causes the housing market to suffer as the subprime borrowers will not be able to finance larger loans and are likely to default their loans, causing an oversupply of houses in the market. And because of the unprecedentedly high rates of default from the loans, the financial system was weakened. The rate of risky mortgages increases from under-qualified borrowers who were imprudently fostered by federal government through federal mandates and subsidies. Furthermore, houses and lands that are repossessed by the banks were not as valuable and worth lesser than what the banks had loaned out as a result of housing bubble burst (Davies, 2014).

Securitization is also another factor that causes the global financial crisis, and through securitization, “originate-to-distribute” business model was fostered. Agency problem has been exposed through the business model due to the reason that the mortgage brokers who originated loans are not making strong effort in evaluating whether borrowers have the ability to pay off the loan in the future as they sell the loans in the form of security to investors as soon as they are able to do that. This raises the problem of adverse selection. Risk-loving investors tend to take loans to acquire property that will bring them profit if housing pricing is high while if housing pricing is down and does not worth as much, they will hand the property over to the lenders. This causes the rate of mortgages on default to increase. The agency problem provides opportunity for brokers to persuade households to take up mortgages that they are not able to afford. Falsifying information...

Other Papers Like B) What Were Some of the Major Causes of the Recent Global Financial Crisis (Gfc), and What Have Been Some of the Ongoing Economic Impacts, Either Globally or Locally in Singapore, of This Crisis?

To What Extent Has the Financial Crisis Challenged the Notion Economic and Monetary Union Has Been a Success in Economic and Political Terms?

2853 words - 12 pages To What Extent has the Financial Crisis Challenged the Notion Economic and Monetary Union Has Been a Success in Economic and Political Terms? Name: Course: Tutor: College: Date: Introduction Many countries and the world in general have been experiencing financial crisis in one time or another starting from the famous 1930s great depression in USA, 2008/2009 US economic crisis to the most recent one, European economic crisis. This is

Crisis, What Economic Crisis? Essay

936 words - 4 pages affected their customers, but business was brisk. “There has been an increase in foot traffic this month. We have a lot of tourists who frequent the mall. Game and Checkers have been very busy, especially on sale days. Security is on high alert to prevent any incidents,” she said. Crisis, what economic crisis? picture: http://www.queenieaustralia.com/formal-dresses Navsha Naicker, the manager at Jay Jays at Durban’s Mugrave Centre, said it

The Real Causes of the Syrian Crisis

971 words - 4 pages The Real Causes Of The Syrian Crisis The Syrian conflict is one of the most top issues at the moment, because now, after that in Syria was used chemical weapons it affects all worldwide. The Syrian civil war or Syrian uprising or also known Syrian crisis is an ongoing armed conflict in Syria between forces loyal to the government and those seeking to out it. It all started 15 March, 2011 with demonstrations which were part of the wider

The Causes And Consequences Of The Russian Crisis Of 1998

2311 words - 10 pages The causes and consequences of the Russian crisis of 1998 The period 1995 to mid-1997 was boom time for Russia’s financial markets. The value of the Russian bonds and stocks soared, with the participation of foreigners in these asset markets increasing rapidly. International investors’ optimism about the country’s future was lifted by stabilization policy that followed the advice of Western institutions. Russian crisis of 1998 were caused

Crisis Of Confidence - Have Recent Audit Failure Damaged The Audit Profession

3672 words - 15 pages to the local district society of charted accountants on the issue;'Crisis of Confidence - Have recent audit failures damaged the auditing profession?'1.2 The report will provide focus for questions and debates by members of the local district society of Charted Accountants.1.3 Included in the report is an introduction to the topic with some history and background. The key issues for the auditing profession within this topic, and finally how the

Causes of the Sovereign Debt Crisis

2475 words - 10 pages wealth that was used in the financial sector created speculation and ultimately determined the financial crisis of 2007-2009. Most of the surpluses of successful countries such as Germany and Japan were channelled into Wall Street and then bundled to cheap credit. This ‘Global Surplus Recycling Mechanism’ (Varoufakis, 2011) in fact actively looked for vast amounts of debtors. This paper therefore argues that the imbalances created in the ‘age of

Which Of The Two Major Approaches To Economic Policy (Keynesian Or Classical) Will Lead The Usa Out Of The Economic Crisis Faster?

933 words - 4 pages Essay Which of the two major approaches to Economic policy (Keynesian or Classical) will lead the USA out of the economic crisis faster? What are two differences between those two types of economic policies? This topic is very much of current interest because the U.S. economy is having quite a hard time these days. In order to properly review the problem I believe it is important to look deeper into the economic crisis of the United States

Impact Of Global Financial Crisis On Pakistan

5046 words - 21 pages called the most serious financial crisis since the great depression by leading economists, with its global effects characterized by the failure of key businesses declines in consumer wealth estimated in the trillions of U.S dollars, substantial financial commitments incurred by governments, and a significant decline in economic activity. Causes of the crisis: It is not clear yet whether we stand at the start of a long fiscal crisis or one

South Africa’s Macroeconomic Performance Before, During and After the Global Financial Crisis of 2007-2008

1045 words - 5 pages – Government Finance Statistics of South Africa (2013) * (Indices; 2010 = 100) Table 2 below demonstrates the effect of the global financial crisis on the economic growth path of South Africa as measured by the percentage change in annual GDP at constant prices. 2008 saw a 34.5% reduction in economic growth from 2007 and in 2009 the South African economy experienced a further decline of 141.7% based on the previous year’s figure. Table 2

The Global Financial Crisis and Protectionism

678 words - 3 pages slump, some of the trade constraints did more harm than good. * The WTO instituted protectionist measures to protect countries and provide a more stable process during an economic down turn * Business was more aware * Treaties were put in place from 1930 between countries and this limit governments to raise trade barriers * Measures were also in the form of non-tariffs barriers * “The world economy is interdependent due to

Drawing on What You Have Learned About City Road Outline Some of the Inequalities on a Street Which You Know

827 words - 4 pages Drawing on what you have learnt about City Road from the Making Social Lives DVD and Learning Companion 1, outline some of the inequalities on a street you know. The purpose of this assignment is to examine the course materials based on City Road whilst also focusing on a street I know. Having grown up in a neighbouring village, High Street in Kippax, West Yorkshire is a street I am well accustomed to. I will show you the inequalities I have

Related Essays

Causes Of The Indonesian Financial Crisis

1195 words - 5 pages Causes of the Indonesian Financial Crisis When the financial crisis hit Asian countries in mid-1997, Indonesia did not escape the impact. It became one of the worst hit countries during the crisis. The question to be answered is what really caused Indonesia, which at the time had a magnificent economic growth to collapse along with most of Asian countries. This paper studies the factors that may be causing the crisis and how the combination of

What Are Some Of The Likely Environmental Impacts Of The Operation Of A 'free Market' Economic System? What Can Be Done To Limit These Environmental Impacts?

1130 words - 5 pages This essay will firstly define a 'free market' then by using course materials it will discuss the possible environmental impacts of a 'free market' and what can be done to limit them.A free market is a market '…where price is determined by the unregulated interchange of supply and demand. This is in contrast to a controlled market where supply, demand, and price are set directly by government' (Wikipedia). In a free market, the economy

What Are The Implications And Problems That The Eu Have Faced Because Of The Recent Eurozone Debt Crisis? What Does The Future Hold?

2954 words - 12 pages how the debt crisis has been handled. After everything that is happening in the EU, the confidence that the global economy have of it has fallen, it will be a priority of the EU to make sure they can instil confidence. The crisis could slow down the US’ economic recovery in the short term. In the long term, the crisis provides a stern warning to the US in regards to its fiscal policies. There are solutions that were put forward to slow down

Some Of The Causes Of Obesity

827 words - 4 pages was estimated at 32.2% for men and 35.5% for women. Curing and treating people who are or were obese had cost the society an estimated $117 billion. Obesity and its side-affects should make people think twice about their eating habits and health alone. Obesity can cause many health issues such as, type II diabetes, cardiovascular disease, along with depression and cancer. All of these diseases living in obesity can lead to death. This is why