Economic Crisis: The Major Causes Of The Financial Crisis

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In this essay I will discuss as to how financial crises can be effectively managed and if possible, whether they can be prevented. Financial crises have been a major part of the past century, from the Great Depression of 1929 to the most recent World Recession of 2008. A financial crisis can have a major impact on the global economy, causing mass unemployment, an increase in the cost of living and an upsurge in poverty levels. Ciro (2012) states the major impact that a recession can have on a population, ‘At the height of the crisis in 2008-2009, industrial production fell rapidly and unemployment rose dramatically’. Nearly a decade on from the Global Recession of 2008 it is important to discover whether it is possible to determine
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Financial leverage involves the use of debt to acquire additional assets. This form of exchange is also known as trading on equity. Financial leverage is a major contributor to a financial crisis to due to the high levels of risk associated with trading on borrowed finance. The risk is occurred as all borrowing must inevitably be paid back, this in turn creates a major risk of bankruptcy. The bankruptcy of one organisation can create major problems for another. Trading on equity was a major contributor to the Wall Street Crash of 1929 due to the high levels of borrowings that were used to finance the stock exchange. Carlberg (2002) states that ‘financial risk is the additional exposure, above and beyond business risk, that a firm incurs by using financial leverage: that is, the debt that the firm assumes by financing the acquisition of its…show more content…
Following the 2008 global financial crisis, many countries, including Ireland, had to aid banking institutions. The amount of aid granted to the banks represented 30% of the European Union’s GDP (, 2011). To ensure that the procedure is never again repeated, the following analyses how the banking institutions should operate like a normal business without bringing the stability of the financial system down with it when in times of economic difficulty. The following framework is an EU report for Crisis Management in the Financial Sector. In the report, first outlined were the enterprises and objectives of the report on crisis management. The report outlines that all credit institutions are involved, along with certain investment firms, in particular those whose failure might place the financial system in

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