Global Crisis

Global Financial Crisis



The world financial system is now undergoing a global economic crisis that started to show its effects in the middle of 2007 and to the present. Around the world stock markets have fallen, large financial institutions have collapsed and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems (Godley, 2009). Although recent data indicate the large industrialized economies may have reached bottom and are beginning to recover, for the most part, unemployment is still rising. Numerous small banks and households still face issues in restoring their balance sheets, and unemployment has combined with mortgage loans to keep home foreclosures at a high rate. The crisis has exposed fundamental weaknesses in financial systems worldwide, demonstrated how interconnected and interdependent economies are today (Ohme, 2008). According to Godley (2009), the root cause of the global economic and financial crisis was the United States mortgage market selling mortgages to large numbers of consumers with inadequate incomes. A collapse of the US mortgage market and the reversal of the housing boom in other industrialized economies have had a ripple effect around the world. Furthermore, other weaknesses in the global financial system have surfaced. Some financial products and instruments have become so complex and twisted, that trust in the whole system started to fail.
When people started to see economical issue, confidence fell quickly. “The ensuing global economic and financial crisis has destroyed trust in banks and borrowers in all the major economies of the world” (Eatwell, 2009, p. 210). Lending slowed, in some cases ceased for a while and even now, there is a crisis of confidence. Depositors were withdrawing their money from uninsured and even insured accounts. But some investment banks did not have enough money in deposits, no secure retail funding; therefore, they collapsed...