Global Financial Crisis

university of stellenbosch |
The Global Financial Crisis |
John Maynard Keynes said that ‘financial speculation should be the bubbles on the stream of enterprise and productivity and not the other way around’ |
|
Fritz H Dausab-15161269 |
5/6/2013 |

“A sound banker, alas! Is not one who foresees danger and avoids it, but one who, when he is ruined in a conventional and orthodox way along with his fellows, so that no one can really blame him”. John Maynard Keynes, The Consequences to banks of the collapse in Money Values,” 1931 |

Table of Contents
Introduction 2
The Problem Statement 2
 Pre-2008 Crises 3
 The 2008 Crises 4
 The Greed Factor 4
 Banks regulation 4
 Poor Risk management and Excessive leverage 5
 Credit enhancement and securitization 5
Consequences 6
Possible solutions 6
Conclusion 7
Bibliography 7

Introduction

Banking crises captures headlines when they are overt, this leads to bank runs (People and institutions getting the money out of the banks or financial institutions like stock markets, in shortest possible time) in the form of capital flight, which usually results in a “credit crunch”, this leaves banks reluctant to lend, but also leaves the ordinary person on the street reluctant to use banks for savings. (Honohan & Laeven, 2005: IV)
The (Global Financial Crisis) GBC was caused by the greediness and the interconnectedness of giant bank conglomerates and other shadow banks using higher risk structures like the hedge funds, investment banks and bank created Special Investment Vehicles. There was a link between the subprime-mortgage businesses in the USA, where banks gave high risk loans to people with very poor credit history. Yet commercial banks are regulated much more than other types of financial institutions such as investment banks.
The USA used the Keynesian economic model to their own peril as the model calls for government to have a bigger say in the economy. This view is...