Economic Crises

Introduction

The global financial crisis is one of the biggest issues that concern humanity since last few years. This disaster has touched virtually every country. Reduced profits, loss of jobs, rising prices, delayed wages, stipends, pensions and unemployment. People are just in a panic. The word "crisis" sounds throughout the newspapers. The newspapers comprises of shocking notes that some businessman committed suicide because he could not feed his family. Unfortunately such cases are rare. 2008 financial crisis is characterized by deterioration of the main economic indicators in almost all countries of the world. The mortgage crisis in the United States appeared in 2006, which impact on the entire world countries. Then the reduction in the sale of real estate's (houses), along with this, issue has developed into a credit crisis in 2008. Credit for virtually any product can get anyone.

The financial crisis took root in the United States of America, and spread to the United Kingdom and other countries the world over. There were numerous factors that lead to the financial crisis like the process of globalization that has been occurring since the part thirty years. The crisis began in the sub- prime markets in the United States and spread to the United Kingdom, remainder of Europe and the world. The world's markets were and still are highly integrated. The next trigger was the increase in leverage of the household sector and the corporate sector by way of the sub- prime crisis. Furthermore, this lead to having effects on the entire financial system. Additionally, majority of the risks were underestimated mostly in the corporate sector

Determinants of Global Financial Crisis

The Economic Crisis was mainly fueled by the use of Derivatives including options, futures, and warrants). They are a mirror reflection of the underlying assets like main stocks and bonds. People started selling securities and derivatives regularly, which triggered panic and crisis situation. Everyone followed the path and sold securities in pursuit of speculation and prices eventually fell down.

The situation was developed as a result of the Economic Boom, which countries witnessed in the previous years. Companies started buying goods and services resulting in increased demand and thus higher prices. Of special interest are construction companies, which started many construction projects by taking a lot of investment credits. And all this has happened largely without any insurance coverage. The principle was simple: why stop a construction project and finance it from own pocket, when you can easily get the credit. This created huge issues for the American Economy. Investment funds created aggressive investment portfolios, thus engaging their money in securities and other funds, which further exaggerated the bubble. The citizens of United States began to live beyond their means. Mortgage was often granted without checking the creditworthiness of the applicant. The situation kept on going worst, which eventually led to serious economic crisis.

The crisis led to mortgage loans granted by banks at high risk of repayment, often those with marginal financial opportunities. These in turn were mass marketed in the form of structured ...