- 14 Oct, 2016
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Analysis in the Latest Personal Crisis and the Banking Industry
The active monetary disaster started as section on the world liquidity crunch that occurred concerning 2007 and 2008. It is always believed that the crisis had been precipitated from the detailed panic created as a result of economical asset promoting coupled which includes a massive deleveraging during the fiscal establishments from the leading economies (Merrouche & Niera��, 2010). The collapse and exit with the Lehman brothers a multi-national bank in September 2008 coupled with significant losses reported by big banking institutions in Europe together with the United States has been associated with the global finance crisis. This paper will seeks to analyze how the global fiscal crisis came to be and its relation with the banking market.
Causes on the money Crisis
The occurrence for the worldwide personal disaster is said to have experienced multiple causes with the major contributors being the fiscal institutions along with the central regulating authorities. The booming credit markets and increased appetite of risk coupled with lower interest rates that experienced been experienced in the years prior to the finance crisis increased the attractiveness of obtaining higher leverage amongst investors. The low interest rates attracted most investors and economical institutions from Europe into the American mortgage market where excessive and irrational risk taking took hold.
The risky mortgages were passed on to personal engineers inside the big economical establishments who in-turn pooled them together to back less risky securities in form of collateralized debt obligations (Warwick & Stoeckel, 2009). The assumption was that the property rates in America would rise in future. However, the nationwide slump from the American property market in late 2006 meant that most of these collateralized debt obligations were worthless in terms of sourcing short-term funding and as such most banks were in danger of going bankrupt. The net effect was that most within the banking establishments had to reduce their lending into the property markets. The decline in lending caused a decline of prices while in the property market and as such most borrowers who had speculated on future rise in prices had to sell off their assets to repay the loans an aspect that resulted into a bubble burst. The banking establishments panicked when this happened which necessitated further reduction in their lending thus causing a downward spiral that resulted to the global economic recession. The complacency through the central banks in terms of regulating the level of risk taking inside of the finance markets contributed significantly to the crisis. Research by Merrouche and Nier (2010) suggest that the low policy rates experienced globally prior to the crisis stimulated the build-up of money imbalances which led to an economic recession. In addition to this, the failure from the central banks to caution against the declining interest rates by lowering the maximum loan to value ratios for the mortgages banking institutiona��s offered contributed to the fiscal crisis.
The far reaching effects which the personal disaster caused to the worldwide economy especially on the banking market place after the Lehman brothers bank filed for bankruptcy means that a comprehensive overhaul belonging to the international finance markets in http://www.master-of-papers.com terms of its mortgage and securities orientation need to be instituted to avert any future financial disaster. In addition to this, the central bank regulators should enforce strict regulations and policies that control lending inside the banking marketplace which would cushion against economic recessions caused by rising interest rates.