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Discussion of the Global Financial Crisis and Its Impacts to the International Financial Markets and Institutions

Autor:   •  April 8, 2015  •  Research Paper  •  6,870 Words (28 Pages)  •  650 Views

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Discussion of the Global Financial Crisis and its Impacts to the International Financial Markets and Institutions

  1. Introduction
  2. Causes of the Financial Crisis

2.1   Deregulation in 1980s

2.2    Bursting of the Unites States Housing Bubble

      2.2.1    History of the booming of US housing bubble

      2.2.2    Subprime Loan

       Appreciation of the house prices

   Moral Hazard of Credit Rating Agency and Insurance companies

   Loose risk assessment of the underwriters

      2.2.3    Bursting of the Houses Bubble

2.3    Over leveraging

  1.    High leverage ratio of the financial institution
  2. High Debt Ratios of Households                                                                3.       Impacts of the Financial Crisis to the Global Financial Markets and Institutions
  1.   Impact upon the United States  

3.1.1        Property Market                                                                                                     3.1.2        Financial Market                                                                                              3.1.3        Labor Market

3.2   Impact upon the Europe

 3.2.1       Degree of impact differences between countries

  1.    Impact upon Greece
  2.    Impact upon Ireland

     3.3    Impact upon Asia

  1.   Lessons learned from the Financial Crisis
  1. Reregulation

4.1.1     Giving more authority to the regulators to monitor everything

4.1.2     Examining the Financial Innovations and imposing proper risk assessment system

4.2    Managing Financial Institution

        4.2.1     Managing High Leverage Ratio and Asset-Liabilities Maturities Mismatch

       4.2.2     Reducing Moral Hazard

  1.   Disclosure of information                  
  2.   Moral Hazard of Credit Rating Agency                                                               4.2.3     Introducing Basel III

 5.  Conclusion

1. Introduction

Alan Greenspan said “Once in a century, credit tsunami” to the 2008 financial crisis (Smith, 2008 October) .The bursting of the housing bubbles in United States in 2007 had caused the subprime mortgage crisis which was the main causes of the appearing of 2008 global financial crisis which has been regarded by many economics as the worst financial crisis after the 1930s “Great Depression”. It destroyed most of the strongest banks and major corporations with the contagion effect. Some needed to bankrupt, some faced bailout and some forced merger.  Firstly, two huge government sponsored financial institutions- Freddie Mae, Fannie Mae has failed in 7 September 2008, and 100 years old Lehman Brothers Investment Banks filed for bankrupt protection in 15 September 2008 (Labaton & Edmund, 2008; Wearden, et al., 2008). American Investment Group (AIG), one of the largest insurance companies also tasted credit grading downing to below “AA” (Karnitschnig, et al., 2008). Merrill Lynch-one of the largest financial management and advisory companies needed to bailout $50 billons from the Bank of America (Talton, 2009). There are 25 banks which were taken by Federal Deposit Insurance Corporations in United States during 2008 September to December and followed by 140 in 2009, 157 in 2010, 92 in 2011 and 40 up until 3 August 2012.So in 2012 August, the total bank collapse become 454 (Federal Deposit Insurance Corporation, 2012) (Figure 1).


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