...information, you may think it may be the status of a certain poor country. The particularly serious numbers show that country is experiencing many problems. I will tell you a secret that you can not have more surprise. The above information is situation of the country that has a most powerful economy all over the world. That is United State of America. The year 2008 marked the economic crisis which caused the USA severe damages. Many of the US financial institutions have suffered heavy losses due to the effect of this crisis. In addition, the crisis is increasingly spreading to the economies of some countries in Europe and in Japan... As a result, some powerful banks in these countries are also suffering from the impact of the crisis. The consequences of the crisis are not only observed in the dimensions of business operation and the economic growth rate and employment rate in the US, but also taken into consideration on the global impact on the shift of international investment capital flow in particular and the world’s economic growth in general. Therefore, it is really necessary to find out what creates this crisis in order to help other countries avoid it. My...
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...Yang Vang ECO 204 The Cause of the Economic Crisis of 2008 Two thousand eight found the American economy in turmoil. The housing market made a dramatic incline which caused an increase in foreclosures. The major investment banks took a huge fall and the stock markets fare no better either. These were events that leaded up to the economic crisis of 2008. There were three major government incentives that were implemented; the Housing and Urban Development policy, Reinvestment Act, and the Federal’s low interest rate policy. These were the incentives that the government provided that ultimately caused the economic crisis of 2008. During the mid-1900s the government set up regulations to help Americans own homes and this made it possible for lenders to lend money to everyone, regardless of income. This was the American dream that people work so hard for. So when it was made possible by the government regulations, there was no stopping Americans from jumping on that wagon. The home owing process was made possible by HUD (Department of Housing and Urban Development) regulations that required lenders like Fannie Mae and Freddie Mac to accept loans with little or no interest down (Pozen, 2010, p. 28). The loans held by Freddie Mac and Fannie Mae went from 25% in 1990 to 45% in 2001 (Gwartney et al., 2008, pg. 481). They owe about half of the United States’ mortgage markets. Then there was the Reinvestment Act that reduced the conventional lending standards to meet the requirement...
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...2008 FINANCIAL CRISIS Name Course Date 1. Background The financial crisis commenced in August 2007 after the preceding inflation. The crisis became more defined throughout 2007 and gained momentum in 2008. This took place even after the financial regulators and the central banks’ tireless attempts to tame the situation. It is alleged that the main factors that influenced its manifestation include corruption, fraud, speculation, greed, bankers and bankers’ bonuses. However, the academic discourse, politics or media has been unable to solve the mystery surrounding the main causes of the crisis[1]. The mystery is academically relevant to the world of research just like the Great Depression, whose causes are still being discussed. Other sources believe that the crisis might have been as a cause of human failures especially following the refusal to bail out the Investment Bank Lehman Brothers. The housing bubble was the immediate trigger of the 2008 financial crisis. The following were the triggers under the housing bubble. I. Subprime lending A subprime mortgage is the mortgage that is readily acceptable without imposing strict measures of standard on it. Before the 2008 financial crisis, there existed a fierce competition between mortgage lenders. The competition between the mortgage lenders ensued from the struggle for market share and revenue. It also took place in tandem with limited supply of creditworthy borrowers which put unconditional stress...
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...2008 FINANCIAL CRISIS Name Course Date 1. Background The financial crisis commenced in August 2007 after the preceding inflation. The crisis became more defined throughout 2007 and gained momentum in 2008. This took place even after the financial regulators and the central banks’ tireless attempts to tame the situation. It is alleged that the main factors that influenced its manifestation include corruption, fraud, speculation, greed, bankers and bankers’ bonuses. However, the academic discourse, politics or media has been unable to solve the mystery surrounding the main causes of the crisis[1]. The mystery is academically relevant to the world of research just like the Great Depression, whose causes are still being discussed. Other sources believe that the crisis might have been as a cause of human failures especially following the refusal to bail out the Investment Bank Lehman Brothers. The housing bubble was the immediate trigger of the 2008 financial crisis. The following were the triggers under the housing bubble. I. Subprime lending A subprime mortgage is the mortgage that is readily acceptable without imposing strict measures of standard on it. Before the 2008 financial crisis, there existed a fierce competition between mortgage lenders. The competition between the mortgage lenders ensued from the struggle for market share and revenue. It also took place in tandem with limited supply of creditworthy borrowers which put unconditional stress...
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...College Assignment Chinese Economics in Global Financial Crisis of 2008 Prepared for F.S. Helmut Submitted January 10th, 2014 Ludacris Yu As for the financial crisis of 2008 in the world, which is the most serious economics crisis since the Great depression in 1930s, and caused globalized influenced. Many major economics have had flat and passive development over the last two years. Whereas in China, the economics still have been growing stabilized. According to the Wikipedia “China is the world’s second largest economy by nominal GDP and by purchasing power charity after the United States of America. And it is the world’s fastest-growing major economy with growth rates averaging 10% over the past several years.[1]” The financial crisis also mean a financial storm. The meaning of storm that are the financial indexes such as short-term interest rates, monetary assets, securities, real estate, land prices, the number of business bankruptcy and the collapse of several financial institutions suddenly or short-period deteriorated in the largest number of countries and regions. The financial crisis can be divided into a currency crisis, debt crisis, banking crisis or others. The economic crisis in the year of 2008 was originated in the U.S. Sub-prime mortgage crisis, the development of the U.S. Sub-prime mortgage crisis, which evolved into a global financial crisis. In my opinion, the crisis in 2008 which began to emerge in the second half...
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...during the 2007-2009 financial crisis ? 1. Global financial crisis 2007 to 2009 1.1 Background The 2007-2009 financial crisis started as a sub-prime crisis in the United States (US). The Wall Street, driven for higher profits and low federal fund rate in home ownership began lending to sub-primes (Whalley et al, 2009). The mortgage loans were then re-packaged into financial instruments and sold to investors globally. When the housing prices declined in 2006, sub-primes defaulted on their mortgage loans as the values of their houses depreciated. These non-performing loans grew in sizes and led to the collapse of the mortgage loan market and collateralised debt obligations, leaving banks and financial institutions with lower net worth (Bianco, 2008). Due to the interconnected economies, the impact of the crisis spread beyond the US and resulted in a global financial crisis. | | | 1. | | | 2. | | | 3. | | | 4. | | | 5. | | | | | | | | | | 1. | | | | | | | 1. | | | 2. | | | 3. | | | | | | GDP: GDP growth (%): Considering that China’s GDP was only a third of the USA’s, its fiscal stimulus package size was significant in comparison to USA and UK, where the stimulus package were only 6% and 1.4% of their respective GDP (Fleet, 2010).. Hu Jintao committed at the G20 summit meeting held in London in November 2008 to provide international financial...
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... The economic crisis that struck the world between 2008 to 2009 had such resounding adverse impacts that brought even the mightiest economies to its knees. Even at present, the far-reaching effects of the crisis remain almost palpable and may be seen in high unemployment rates, economies still in recession and seemingly insurmountable national deficits. The United States, where the crisis had its beginnings continues to suffer from the recession even if it is gradually recovering. The present problems in the Euro zone may be partly attributed to the recession of 2008. Because of these, many scholars, economic analysts, researchers and businessmen continue to endeavor up to now to discern what the real cause of the economic crisis was in the hopes that it will not happen again. Many people attribute the global economic meltdown to the collapse of the subprime sector in the United States. To put it simply, the mortgage sector was blamed for the crisis because of how many financial instruments were collateralized by mortgages of people who had bad credit histories. When too many of them failed to meet their obligations, it began a series of defaults that ultimately collapsed not only the mortgage industry but the financial industry as well. All those that have investments in both sectors, local and foreign entities, also became affected as they lost what they have invested. However, a crisis of such scale as that which took place in 2008 to 2009 could not be attributed...
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...In the years leading up to the crisis, high consumption and low savings rates in the U.S. contributed to significant amounts of foreign money flowing into the U.S. from fast-growing economies in Asia and oil-producing countries. This inflow of funds combined with low U.S. interest rates from 2002-2004 resulted in easy credit conditions, which fueled both housing and credit bubbles. Loans of various types (e.g., mortgage, credit card, and auto) were easy to obtain and consumers assumed an unprecedented debt load. As part of the housing and credit booms, the amount of financial agreements called mortgage-backed securities (MBS), which derive their value from mortgage payments and housing prices, greatly increased. Such financial innovation enabled institutions and investors around the world to invest in the U.S. housing market. As housing prices declined, major global financial institutions that had borrowed and invested heavily in subprime MBS reported significant losses. Defaults and losses on other loan types also increased significantly as the crisis expanded from the housing market to other parts of the economy. Total losses are estimated in the trillions of U.S. dollars globally. While the housing and credit bubbles built, a series of factors caused the financial system to become increasingly fragile. Policymakers did not recognize the increasingly important role played by financial institutions such as investment banks and hedge funds, also known as the shadow banking...
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...The global financial crisis of 2007 – 2008 impacted every nation in the world, but the timing and severity of the impact varied greatly depending on various factors such as the sovereign debt as a percentage of Gross Domestic Product (GDP) prior to the financial crisis, as well as the level of exposure to the Collateralized Debt Obligation (CDO) sub-prime mortgagebacked securities of the different countries. Where governments and banks had significant exposure to CDOs, which became known as toxic debt instruments in the wake of the financial crisis, the impact was experienced more speedily and more severely. South Africa had very limited exposure to these debt instruments, so the impact on their economy lagged other economies such as the USA. a) South Africa’s macroeconomic performance before, during and after the global financial crisis of 2007-2008 As indicated by the figures in Table 1 below, production and the utilisation of production capacity began tapering down in 2008 as the financial crisis took hold. The figures for 2009 clearly describe the impact of the crisis on South Africa at the bottom of the cycle with reductions of 13.9% in production, 16.2% in sales, and 6.8% in the utilisation of production capacity from 2008. It should be noted that production, sales and utilisation of production capacity had by the end of 2012 still not recovered to the levels recorded for 2008. Table 1: South Africa’s production, sales and utilisation of production...
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...The 2008 financial crisis was a massive economic and financial downturn that later became a full on recession. This crisis lead to a near halt in trading and plummeted the GDP of almost all European countries. But how did the booming European economy suffer such terrible loss? While the crisis began in the United States a nationwide recession, especially one in a country thought to be economically sound, can quickly cause panic across the globe, leading to a distrust of banks. This can be absolutely detrimental as the system of banking relies wholeheartedly on trust as money is truly just a piece of paper with a trusted value. Panic can cause the public to rapidly pull their funds from banks and this panic and draining of funds can quickly...
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...experienced mixed performance in its economic growth over the last decade. From 2004 to 2014 UK’s economic growth has not been constant considering a range of factors that have affected such growth over these years leading to variations in economic growth. The situation has necessitated the UK government to introduce policies aimed at improving the UK economy and steer its growth. Economic growth and its effects Economic growth is an important aspect in all countries around the world. Economic growth is the increase in the output a society’s goods and services (Szostak, 2009; Dolan, Frendreis & Tatalovich, 2008). This value also includes income earned by citizens. The ways used to measure economic growth varies and the most common measurement of increase in production that results from economic growth is Gross National Product and Gross Domestic product. GNP measures the total output of services and goods produced by a country’s economy. Economic growth in the UK has varied from 2004 to 2014 especially when real GDP growth rate in these years are compared to previous years. From 2004 to 2007 real GDP growth rate compared to previous years was relatively stable. In 2004 real GDP growth rate was 2.91% followed by growth rates of 2.77%, 2.6% and 3.63% (Statista, 2014a). 2008 to 2009 saw fall in real GDP growth rates. These were -0.97% and -3.97% in 2008 and 2009 respectively (Statista, 2014a). This can be attributed to the financial crisis that was being experienced all over...
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...Keynes, ‘love of money’ and the current crisis Paolo Paesani1 This version 1 October 2010 Preliminary version ABSTRACT Keynes saw ‘love of money’, love for the unlimited accumulation of liquidity as mark of personal success and shield against uncertainty, as a defining element of capitalism. This paper investigates connections between ‘love of money’ and the current crisis establishing two main linkages: bonus-based compensation mechanisms and hedge funds. Closer scrutiny and regulation both of bonuses and hedge funds can help prevent future crises. Permanent solutions to the problems posed by ‘love of money’ however will come only from new models of education and persuasion. Keywords: Causes of the financial crisis JEL: 1 University of Rome “Tor Vergata”, e-mail paolo.paesani@uniroma2.it. A previous significantly different version of this paper has been published in Italian in Il Ritorno dell’Economia Politica , G. Bonifati and A. Simonazzi (Eds.) Donzelli Editore, 2010, Roma. I would like to thank Annalisa Rosselli and Matteo Formenti for their helpful suggestions and comments. The usual disclaimer applies. “Whereas modern theory serves as a simulacrum of the economy – stylised and abstract to be sure – Keynes theory is a diagnostic instrument in the service of Doctor Keynes, consulting economic physician” (Hoover 2006, p. 78) “I also want to emphasise strongly the point about economics being a moral science. [A science that]…deals with introspection and with values...
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...Cunent Politics and Economics of Europe ISSN: 1057-2309 Volume 21, Issue 1 © 2010 Nova Science Publishers, Inc. ICELAND'S FINANCIAL CRISIS* James K. Jackson ABSTRACT On November 19, 2008, Iceland and the Intemational Monetary Fund (IMF) finalized an agreement on a $6 billion economic stabilization program supported by a $2.1 billion loan from the IMF. Following the IMF decision, Denmark, Finland, Norway, and Sweden agreed to provide an additional $2.5 billion. Iceland's banking system had collapsed as a culmination of a series of decisions the banks made that left them highly exposed to disruptions in financial markets. The collapse of the banks also raises questions for U.S. leaders and others about supervising banks that operate across national borders, especially as it becomes increasingly difficult to distinguish the limits of domestic financial markets. Such supervision is important for banks that are headquartered in small economies, but operate across national borders. If such banks become so overexposed in foreign markets that a financial disruption threatens the solvency of the banks, the collapse of the banks can overwhelm domestic credit markets and outstrip the ability of the central bank to serve as the lender of last resort. This report will be updated as wananted by events. BACKGROUND Iceland [1] is the smallest economy within the Organization for Economic Cooperation and Development (OECD) with a gross domestic product (GDP) in 2007 of about $11.8 billion...
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...2 | Financial Subprime Mortgage Crisis Causes | 3 | Introduction & Background to the Situation of the Egyptian Economy prior to the Global Financial crisis | 10 | Financial Subprime Mortgage Crisis Impacts on Egypt | 13 | The Egyptian Economy & the crisis | 21 | The Conclusion & Solutions | 23 | The References | 27 | The Introduction In the second half of 2008, the world economy went through a serious financial upheaval that sparked off in the United States and spread to Europe and the rest of the world. The negative consequences of this financial crisis had bitten the Egyptian economy in many fields. Egypt’s growth rate witnessed setbacks and may have posted its slowest annual growth in half a decade in 2008–2009 as the global crisis hit revenue from tourism, migrant labor remittances, the Suez Canal, export revenues, and investment. The severity of the crisis and its uncertainties demonstrated the need for urgent action to restore financial stability, lead the economic recovery and secure a sustainable future for the country. This paper therefore critically discusses the current global financial crisis and its impact on Egypt. It presents an overview of the Egyptian economy prior to the crisis, followed by an assessment of the depth and impact of the crisis on sectors of the Egyptian economy. Additionally, the paper highlights the actions taken by the Egyptian government to weather the effects of the crisis and concludes with some policy recommendations...
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...Discussion Paper No. 2009/01 The Financial Crisis of 2008 and the Developing Countries Wim Naudé* January 2009 Abstract Following the financial crisis that broke in the US and other Western economies in late 2008, there is now serious concern about its impact on the developing countries. The world media almost daily reports scenarios of gloom and doom, with many predicting a deep global recession. This paper critically discusses this and concludes that as far as the developing countries are concerned, a bit more optimism may be warranted. Although without doubt there are particular countries that will be adversely affected, there will also be countries that may be less affected, may avoid recession, and may recover sooner than expected. Six major reasons for this conclusion are discussed. Without this resilience in the developing world, prospects for the world’s richer countries would be much bleaker. Finally, some options available to the developing countries for minimizing the impact of the crisis are discussed. The crisis accentuates the urgent need for accelerating financial development in developing countries, both through domestic financial deepening, domestic resource mobilization, and reform of the international financial system. Keywords: financial crisis, developing countries, development finance, financial development JEL classification: F34, F35, G14, O16 Copyright © UNU-WIDER 2009 * UNU-WIDER, Helsinki, Finland, email: wim@wider.unu.edu This study has been prepared...
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