Firstly, an erroneous policy from the U.S government caused a long term effect to a financial system globally. Generally, the housing and financial market had been strongly promoted. The competition among financial institutions was increased as same as Gross domestic Product (GDP) in each country. To be more specific, reducing of interest rate in short time and sub-prime borrowers had been facilitated to own a home easily and that caused a sub-prime crisis. Ely shows that the US government used the financial institutions as Federal Home Loan Mortgage Corporation (Freddie Mac) and Federal National Mortgage Association (Fannie Mae) to support sub-prime borrowers or people who had lower credit. Moreover, banks had been pressed to extend loan for homebuyer with a low interest rate policy. Many flexible campaigns attract borrowers to own a house. By the supporting from Fannie Mae & Freddie Mac and the Federal Home Loan banks, opportunities had been...
... middle of paper ...
...e of TBTF could not protect Lehman from financial disaster, so in the future, this policy should be changed from Too-Big-Too-Fail to Too-Big-Too-Save. Even though, US government should lend a hand to pull Lehman from bankrupt, but the request had not been responded, because the intervention from US government may ruin a global financial mechanism. Therefore, a failure financial management in Lehman Brothers can be one of significant cases in this century.
Based on the above, a conclusion can be drawn that misguided policies, lack of risk management and transparency regulation can strongly cause the global financial crisis. Therefore, increasing these three solutions can improve a financial foundation worldwide. Ultimately, a consensus needs to be reached by government, as well as community in each country to ensure that global monetary system can be implemented.
Need Writing Help?
Get feedback on grammar, clarity, concision and logic instantly.Check your paper »
- ... One of the largest failures of the financial sector was its overconfidence and uncertainty of the future. In political economics, uncertainty of the future and the importance of history play a great role in shaping current and future events. For the financial markets, decisions are influenced mainly by confidence and “animal spirits” of the entrepreneurs; there is no set structure that bankers can rely on. Thus, the financial sector relies on recent history to make decisions for the future. In their analysis of history, rare and unpredictable events that have catastrophic consequences are often ignored, which can lead to an overconfident analysis of an unstable market.... [tags: Subprime mortgage crisis, Debt, Investment]
813 words (2.3 pages)
- ... Lending parties extended mortgage loans to individuals who were previously ineligible due to credit score. The creation of NINJA loans made it accessible for borrowers with no income, no job and no assets to obtain a loan. The catalyst for the prompt expansion was caused by the mortgage lender, Fannie Mae and Freddie Mac. Congress allowed and motivated them to “promote affordable housing through expanded purchases of nonprime loans to low-income applicants” (White). The fueling of these insecure mortgages was backed by the cheap Money Policy approved by the Federal Reserve.... [tags: Subprime mortgage crisis, Debt, Mortgage loan]
937 words (2.7 pages)
- Introduction The current financial crisis happened on 2008 and lasted for quite a while. It caused different levels of economic recessions in varying regions all over the world. Government officials of financial institutions and economists try to rectify the financial mistakes and lower the risk of future financial crisis. This essay will take United Kingdom financial system for instance, analysis its financial regulations. Firstly, it gives the background of the financial crisis. Secondly, it comes to the failure of old regulation which takes place in the 2007-2008crisis after analysis the examples from UK and International market.... [tags: economic recessions]
1123 words (3.2 pages)
- Regulation of Banking and Financial Services The Failure Process Imposed Upon Financial Institutions The concept of systemic risk sprung to the foreground of the public’s consciousness during the financial crisis of 2007-8 as the Too Big To Fail (TBTF) banks were bailed out by the various US Federal Government agencies e.g., US Treasury via the Troubled Asset Relief Program (TARP) and the US Federal Reserve via Quantitative Easing (QE). However, as it turns out, the concept of systemic risk is not so easy to define in legal terms—as illustrated by the difficulty in nailing down the definition by US Congress via the Dodd-Frank legislation or by the US Treasury and the Federal Deposit Insuranc... [tags: Depository Institutions, Geographic Expansions]
1221 words (3.5 pages)
- Introduction: From the beginning of the 1990s, the global financial system has entered a phase of unprecedented restructuring, marked by the increasing integration of financial markets and increased economic interdependence. This process, known under the name of financial globalization allows companies better access to financing, offers investors a greater possibility of investment and thus increases the liquidity of the global economy. However, this financial globalization has enormous risks. Indeed, creating an interconnection between national financial systems, it facilitates the transmission of shocks, contagion .... [tags: Financial Globalization]
3149 words (9 pages)
- The Financial Crisis of 2008 was the worst financial crisis since the Great Depression, however a lot of American’s want tougher law of be enforced against executives and companies they think started the mess (Jost/Misconduct). Civil charges have been brought up against major banks for misleading investors, but a federal judge rejected a proposed settlement saying it was too lenient (Jost/Misconduct). The flood of subprime mortgages roiling the housing market in the U.S. is also causing the worldwide credit crisis (Jost/Crisis).... [tags: investment banks, risk]
1809 words (5.2 pages)
- Marconi (2010) believes that the role played by the institutional investors propagated the financial crises. Institutional investors, which is both, individual or companies do enjoy the benefits of reduced commission preferential regulations. This is due to their large and professional investments. Institutional investors like the mutual funds, pension funds, hedge funds like Magnetar Capital, and Life insurance companies like the AIG and investments trusts contributed to the global financial crises of 2007-2008.... [tags: Economics ]
1081 words (3.1 pages)
- The institutional investors across the entire globe have always played a significant role in the financial sector. During the global financial crises in 2007 and 2008, they played a major role. In different economies, institutional investors invest substantially on the equity funds. Dropping out of major institutional investors from the equity market was a major issue in the 2007 and 2008 financial crises across the entire globe. The financial crises were according to Weissman (2011) characterized by falling profits in businesses across all industries, falling asset prices and withdrawal of institutional investors’ assets from the equity funds.... [tags: Economics ]
1282 words (3.7 pages)
- Financial Crisis 2009 The United States has seen this situation before and survived; but not without change. Any solution to the current financial crisis will need to include the three players; individuals, banks, and the government. All three will also need to be held accountable. Many individuals have stepped beyond their personal means, financial institutions have acted with blatant neglect, and so far the government has in essence stood by and supervised the entire show. Capitalism is the American ideal, but unchecked and immoral capitalism leads to collapse through greed.... [tags: US Economy]
1369 words (3.9 pages)
- The Failure of Northern Rock in the Light of Banking Economics and Regulation Introduction Increasing global connectivity and integration in today’s world ensures that almost any serious problem has worldwide ramifications. The global financial system can serve as a key example of this phenomenon. Very recently, Britain’s fifth-largest mortgage lender Northern Rock was rescued by emergency funding from the Bank of England. This made the Newcastle-based firm the highest profile UK victim of the global credit crunch that had been triggered by the sub-prime mortgage crisis in the US.... [tags: Business Analysis Case Study]
2233 words (6.4 pages)