The Global Financial Crisis

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1. Introduction

1.1. Background

The Financial crisis was triggered in 2006 when US housing market began to crumble as the housing price reached their highest point after years of speculative price increase; many house owners defaulted on their loans, particularly subprime mortgagers (Archarya et al., 2009). Starting in mid-2007, the outburst of US housing bubble in the subprime mortgage leads to the global financial crisis that has been often so called ‘Great Recession’ (Verick and Islam, 2010).

Archarya et al. (2009) states that it is widely agreed that the fundamental cause of this global financial crisis was the credit boom and the housing bubble. While Poole (2010) argued that it is a mistake to only take subprime mortgage issue as a unique reason of the crisis. With regard to the root causes behind the subprime mortgage issue, Verick and Isalam (2010) suggested below four factors that are low interest rate allows banks to search for high yield investment with high risk such as subprime mortgage (Crouhy et al. 2008); global imbalances between US the excessive consumption by depict and China the excessive saving by surplus fuelled the housing bubble and credit boom, it is closely connected with financial crisis (Obstfeld and Rogoff, 2009); misperception the risk of the subprime mortgage defaults; loose financial regulation that failed to control the standards in the mortgage market, and this point is supported by Crotty (2009) that regulators allow banks to hold assets off balance sheet without capital requirement to support them.

After this introductory section, section 2 discusses the impact of recession on customer behaviour; section 3 presents an analysis on how does the recession affect the companies’ profitabilit...

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