WORLD FINANCIAL CRISIS

 WORLD FINANCIAL CRISIS1
WORLD FINANCIAL CRISIS2
Introduction
The financial crisis from 2007- 2008 that can still be noticed in the world is considered to
be the worst financial crisis since the Great Depression of the 1930s by the researchers and
several economists. It was basically started by the visible deficit in the financial sectors of the
United States and led the fall down of huge financial foundations, the bailout of banks
governments, and recession in stock markets approximately all over the world.The failure of
U.S. real estate market is worsened in 2006 and this caused the standard securities fixed to U.S.
real estate costs to fall which ultimately damaged the financial sectors worldwide (Bates, 2009).
This factor affected the economic conditions all over the world and the economy delayed during
this stage. Not only United States, but all other countries suffered as the credit had tightened and
there was a downturn in the international trade.
Causes
There have been numerous reasons that can be stated for the occurrence and busting of
the economic bubble that ultimately led to the implosion of the financial markets all over the
world. But there remains less doubt about the fact that US being the strongest economy of the
world continues to be the epicentre of all the monetary and other economic activities that
influence the functioning and operation of the global markets all over the world. It was during 
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the arrival and invasion of this meltdown when one of the officials of a famous multinational
said that ‘when US sneeze the entire world suffers from the flu disease’(Cooper, 2008).
US diplomatic methodology altered considerably which was reflective the way George
W. Bush, at that time, confronted the whole world by saying ‘either you are with us or you are
with the terrorists’. The statement was within itself a sheer demonstration of the most coercive
form of diplomacy witnessed. The image and perception regarding Muslims that was established
within the minds of Americans was further cemented by the subsequent invasion of Afghanistan
in order to eliminate the Taliban and Al-Qaeda.
A prominent result at intra-American level was the start of a slow and steady economic
meltdown of the US economy. It was reported by mainstream American press that during the
time of Iraq invasion in 2003 President Bush released a military package of $80 billion from the
Congress to initiate the military operation in Iraq. After this, the compensation of all this was
received by imposing back-breaking taxes upon people of the country who were forced to act
submissively in such circumstances.
The entire scenario has played a pivotal role in crumbling the economic foundations of
capitalism upon which the financial institutions of the country stand upon. Hefty percentage of
back-breaking taxes fuelled public resentment for the government and in order to provide
fleeting relief, the government decided to raise the living standard of people through a poorly and
hurriedly managed scheme of mortgaging property which busted in the form of collapse of
organizations like Lehmann Brothers and globally established banks like Citigroup, HSBC and
AIG. All these collectively led to the worst economic crisis and market crash of the US market
that imposed its effects on the entire global economy in the form of massive unemployment, 
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plummeting prices and eroding consumer credibility (Liang, 2012). Governments and banks act
with extraordinary fiscal incentives as a response, monetary policy increase and institutional
bailouts.
The deflation of assets gave way to the credit crunch, which turned into an absolute
panic. To leverage each company chooses to sell. Any company that did business in a structured
manner chooses to sell any risk. The guarantee funds that try to keep pace with the trend in
prices also choose to sell. The case in point is that only the Federal Reserve buys. It is definitely
a cause for concern and provides an answer to the question as to why recession could not be
prevented.
The situation was terribly easy to analyse, and almost impossible to correct. However, in
the last quarter of 2007 that ended on 31stDecember 2007, the total amount of money those banks
had lent increased by 7.6% compared to the previous four months. The total number of securities
held by banks had increased even more. This in itself would seem a contradiction. Unfortunately,
the explanation is not easy, but fortunately is short.
To increase their profits, banks in the world - but especially in America - lent money on
long term basis, paying debt with short term contracts (Clemmitt, 2008). The banks kept the
partial ownership of these creations, and received a share of their profits. The subsidiaries were
being carefully and cleverly hidden to the public and remained outside the audits of the banks
themselves. The market had refused to gi