The recent global financial crisis that dates back to 2008 has been a subject of endless debate in the print and electronic media. It should clarify herein that this paper attempts to address the many peculiar issue encompassing global financial crisis of 2008.
To be precise, I am of the opinion that the subject matter research posits many interesting details to analyze and assimilate factor that can be relevant to critical thinking, which I feel will be involved to what I have learned in the course of my research work on the subject matter.
This paper and the attempt made in that regard is emphasized initially to define the problem, which I feel would complement the factor attached to finding the main causes of the problem in order to enable through an analysis proposal for solutions by using financial economic tools and graphics. In that context, I will also use goal setting chart as a measure to find the best available solutions for the aforementioned problem in detailed.
Defining the problem
It is rather complex to define global financial crisis. Although, "global financial crisis and its definition is rather broader in a sense that one or more global financial centre are mired in a systematic crisis of one form or the other." (Carmen M. Reinhart, 2009, p. 260) To some extent, Robert J. Shiller (2008) also is of the opinion that "global financial crisis and its meaning and definition of the term is related to subprime crisis that is caused due to financial failure and credit crunch, wherein the forces unleashed by subprime crisis can be rampant to threaten more and more collateral damages to the economy" (Shiller, 2008, p. 1) and financial market on the global scale.
Observation
When we put emphasis to the factor encompassing the recent 2008 financial meltdown and according to The Economic Times it "highlights the fact that the recent financial turmoil is deeply rooted and attached to the subprime crisis." (TheEconomicTimes, 2008) To top it all, financial experts and observers also asserted that the "the global fiancial crisis in 2008 is accoded as one great event in the history of the world economy, which is rare to hapen" (Shasi, 2010) given that a financial crunch of such a stature is directly contrasted with the great depresion.
Below is an index of the global finaical crisis that dates back to 2008 and presents some insighful meaning as to the impact and inflation in the global economy.
Figure: Global Financial Crisis Chart (2002-2008)
Source: (www.imf.org)
Global Financial Crisis and its Effect
To some extent, expert feels that "the impact of 2008 global financial cris also have left peple to ponder about, "wherein its effect can directly be traced to the livelihood of millions of individuals in an interconnected world." (Shah, 2010)
There is no denying the fact in which it is held that "the global fiancial crisis of 2008 stated to show its effect in the ealrly part of 2007 and was deep into 2008, wherein major stock markets around the wolrd have fallen dramatically. The collapsed of the financial institutions such as lehman brothers and the likes also further aggravated the situation and lead it to the point that even the wealthiest nations such as US where in the cringe of total fallout." (Shah, 2010)
Thus, the damages done by global fiancial crisis of 2008 can be emphasized towards "the macroeconomic implication for the global economy, where growth were slower and weakened totally in US and other emerging economy." (Lipsky, 2008)
Causes of Global Financial Crisis
According to expert and financial analysts who are associated with shasi.org, "one major cause for the financial crisis of 2008 was Greed that made people not to use common sense when it matter to personal financial behavior," (Shasi, 2010) which deteriorate the situation.
The Economic Times also have highlighted the financial analysis undertaken to the causes also as one factor of greed. What can be justified in that regard is the fact that "during the years when financial crisis was not there broker who were in greediness of the big commission talked buyers with poor credit history to buying housing mortgage, with lesser down payment and less credit check." (TheEconomicTimes, 2008) In such a situation, recurring debts causes major high-risk debts that directly impact financial instruments to collapse due to prime mortgage.
The chart below should define the true nature of prime mortgage, (1949-2009)
Source: (www.imf.org)
Goal Setting
From analyzing the chart related to prime mortgage that is rooted in subprime mortgage crisis erupted as early as 2007, when "Bears Stearns hedges funds collapsed." (TheEconomicTimes, 2008)
Causes Problem Effect
CDO or Collateral debts obligations
Subprime mortgage
Collapse of financial market and credit crunch
Possible solution
Housing mortgage should do a credit check and initiate down payment
Probable outcome
Healthy credit flow and recurring interest rate can be maintained for credit crunch effects
Goal Setting Chart:
From our understanding of global financial crisis of 2008 the following is to be maintained,
Goals: Reduce the number of debts/ Total reduction of high-risk debts.
Achieving the Goals:
Credit facilities and interest rate should maintain concurrently to complement each other.
Recurrent flow of interest rate should be defined to cover any major setback in the financial market.
Greed and subprime mortgage situation should be done away with.
Poor credit should not be accepted into housing mortgage.
High risks debts should be done away with as far as possible to maintain financial stability.
Conclusion
To conclude upon, my finding for the financial crisis of 2008 shows that much of the reason for the causes for greed that lead to subprime mortgage. Such threats have to be done away with as far as possible in the near future. What I have learned so far is that credit crunch arises due to factor attached to subprime mortgage.
Thus, the best measure that can be undertaken to facilitate a healthy financial market and flow of credit is to maintain high-risk debts and bailout of financial institutions for a major reboot.
