Reasons For The Year / 08 Deepened Financial Crisis Essay

Reasons For The Year / 08 Deepened Financial Crisis Essay

Length: 1220 words (3.5 double-spaced pages)

Rating: Strong Essays

Open Document

Essay Preview

Explain the reasons for the 2007/08 deepened financial crisis in the European Union (EU) and critically assess its response to this crisis.

Introduction
Lehman Brothers was a big global financial services firm. In September 2008 the firm almost brought down the world’s financial system as it collapsed and filed for bankruptcy. This was because they faced liquidity problems because they didn’t have enough capital in reserve.
A financial crisis can be known as a commotion in the financial market. This is associated typically with falling asset prices and insolvency among debtors and intermediaries, which spreads through the financial system, disrupting the market’s capacity to allocate capital. The most common financial crisis occurs when certain financial institutions or funds invested in financial assets lose most of their value.
In this essay I will be explaining the reasons for the 2007/2008 deepened financial crisis in the European Union. A financial crisis occurs when an increase in asymmetric information from a disruption in the financial system causes severe adverse selection and moral hazard problems that render financial markets incapable of channelling funds efficiently from savers to households and firms with productive investment opportunities. (Frederic. S, Mishkin Kent Matthews Massimo Giuliodori)
Background
During the crisis, an overwhelming amount of mortgages were given out in America. Loans were given out to ‘Subprime’ borrowers. This meant they didn’t look at any credit history of the borrower. These risky mortgages were passed on to ‘financial engineers’ at the large financial institutions, who turned them into low-risk securities by pooling them into large numbers. (Economist, 2013) Pooling only works when t...


... middle of paper ...


...ts Code of Conduct Fundamentals for Credit Rating Agencies in May 2008 (IOSCO, 2008) to further improve the quality of the rating process, address conflicts of interest, and provide investors with more data on the historical performance of ratings and with more information on rating methodologies and criteria and on how data limitations are addressed.
In the past observers have criticised US the regulatory systems



Conclusion







Bibliography
Utzig, S. (2010). The Financial Crisis and the Regulation of Credit Rating Agencies: A European Banking Perspective. ADBI Working Paper Series. Retrieved January 16, 2016, from http://www.adb.org/sites/default/files/publication/156043/adbi-wp188.pdf

Sacasa, N. (2008). Preventng Future Crisis. Finance and Development. Retrieved January 23, 2016, from http://www.imf.org/external/pubs/ft/fandd/2008/12/sacasa.htm





Need Writing Help?

Get feedback on grammar, clarity, concision and logic instantly.

Check your paper »

The Euro-zone Crisis Essay

- ... The three FDI theories that will be selection are: Product Cycle Theory, Internalisation & OLI Paradigm. In line with Hymer’s market imperfections and monopolistic advantages theory, Vernon (1979) argued that ‘technological innovations in consumer and industrial goods could explain international investments of firms.’ (Vernon, 1979). According to Vernon (1979), there are four stages of production cycle: innovation, growth, maturity and decline (Vernon, 1979). In the first stage of the production cycle, manufacturers have an advantage by possessing new technologies, as the product develops also the technology becomes known (Lancaster & Wesenlund, 1984)....   [tags: global stock markets, financial crisis]

Strong Essays
1448 words (4.1 pages)

Essay on How To Solve The Foreclosure Crisis

- The current foreclosure crisis has affected a lot of people. I have relatives that were recently kicked out of their house. There are several reasons why this is happening and several ways to approach the crisis. My opinion is that a lot of problems are caused by lack of education. If everybody were educated about economics and marketing I believe most people would have been able to avoid foreclosure. High schools for instance should start offering courses in economics and handling finances. Financial education should start as early as possible....   [tags: Economics, Mortgage, Housing Crisis]

Strong Essays
1076 words (3.1 pages)

How to Solve the Foreclosure Crisis Essay

- As of this writing, Wells Fargo is the only remaining large national bank that has not repaid its bailout debt to the federal government. Most large nationals have repaid their loans from the Troubled Asset Relief Program (TARP) in order to avoid the government controls that were tied to them. This refusal on the part of financial institutions to be under stricter control of government is prolonging the foreclosure crisis. One of the reasons that foreclosures continue is because the banks are not granting loan modifications; they are playing by their own rules....   [tags: Economics, Mortgage, Housing Crisis]

Strong Essays
1444 words (4.1 pages)

The Greece Debt Crisis Essay

- Chapter 1: Introduction Introduction Historically, financial crises have been followed by a wave of governments defaulting on their debt obligations. The global economic history has experienced sovereign debt crisis such as in Latin America during the 80s, in Russia at the end of the 90s and in Argentina in the beginning of the 00s. The European debt crisis is the most significant of its kind that the economic world was seen started from 2010. Financial crises tend to lead to, or exacerbate, sharp economic downturns, low government revenues, widening government deficits, and high levels of debt, pushing many governments into default....   [tags: Greece's Economic Crisis]

Strong Essays
3195 words (9.1 pages)

The Global Financial Crisis on India Essay

- Why do you think India remained relatively insulated from the financial crises. "The contagion is truly global in a globalized world. How can the high priests of globalization in India expect to insulate the country from this all-pervasive crisis?" - By S. Shivaraman It is not right to say that a country is insulated from financial crisis in today’s globalized world. In some way or the other there will be an effect of failed programme of one country on the other....   [tags: Economics ]

Strong Essays
2490 words (7.1 pages)

The Global Financial Crisis Essay examples

- Introduction In 2008, the world experienced a tremendous financial crisis which is rooted from the U.S housing market. Moreover, it is considered by many economists as one of the worst recessions since the Great Depression in 1930s. After bringing a huge effect on the U.S economy, the financial crisis expanded to Europe and the rest of the world. It ruined economies, crumble financial corporations and impoverished individual lives. For example, the financial crisis has resulted in the collapse of massive financial institutions such as Fannie Mae, Freddie Mac, Lehman Brothers and AIG....   [tags: Economics ]

Strong Essays
2672 words (7.6 pages)

The U.S. Financial Crisis Essay

- It is difficult to quantify exactly how much revenue a bank generates from proprietary trading, one brokerage analyst estimated that 5%-10% of trading done by large banks is a result of trading not done on behalf of the client.32 These investments are the reason Lehman Brothers Holdings Inc., a global financial services firm, failed. The firm participated in investment banking, equity, fixed-income sales, research, trading, investment management, private equity, and private banking. At one time, Lehman Brothers Holdings Inc., was a primary dealer in the United States Treasury securities’ market....   [tags: Economics]

Strong Essays
1812 words (5.2 pages)

Impact of Financial Crisis on Gulf Area Essay

- ... First, these countries had not invested directly in the United States markets and so when the bubble busted, the GCC countries were not directly affected. Second, most of the economies in the GCC are not fully integrated in the global economy. This implies that most of the shocks that can have devastating effects on the economies of many countries can only have a mild effect to the countries in this region. Third, GCC members are known to be very prudent in the way they manages their resources....   [tags: housing, bubble, debt, loans, prices]

Strong Essays
1739 words (5 pages)

Asian Financial Crisis Essay

- The paradox of thrift is defined as “ a change in the amount household wish to save at each income leads to a change in equilibrium income, but no change in equilibrium saving, which must still equal planned investment” (Begg, Fisher, Dornbusch, 2009). Increase in savings is actually the consumption foregone by the consumer. Domestic saving increases investment in a country which fuel the economic growth. But could savings be a cause for the financial crisis in Asian countries. As told by Dr Zhou Xiaochuan, Governor of the People’s Bank of China, “ the East Asia countries are influenced by Confucianism, which value thrift, self-discipline, zhong yong or Middle Ground (low-key)...   [tags: International Finance ]

Strong Essays
1198 words (3.4 pages)

Financial Crisis 2008 Essay

- Just after ten years of Asian financial crisis, another major financial crisis now concern for all developed and some developing countries is “Global Financial Crisis 2008.” It is beginning with the bankruptcy of Lehman Brothers on Sunday, September 14, 2008 and spread like a flood. At first U.S banking sector fall in a great liquidity crisis and simultaneously around the world stock markets have fallen, large financial institutions have collapsed or been bought out, and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems....   [tags: Finance Economy Economics History]

Strong Essays
1151 words (3.3 pages)