FINANCIAL CRISES

Financial Crises: Causes and Consequences



Table of Content

Introduction3

What is a global financial crisis?3

Origin and causes4

The mortgage crisis in the U.S. in 20074

High commodity prices4

Innovations in the financial market6

Arbitrary use of the dollar6

Deregulation: transfer of power from the state to financial groups7

Banking giant uncontrolled7

Conclusion11

References13

Introduction

The word crisis in 2008-2010 sounds, perhaps, more frequently after every other word. The global financial crises have affected or even affect almost all countries, except for the poorest countries that already are in constant financial and economic crisis.

In the eyes of much of public opinion, the financial crisis has two faces: the fall of property prices in the U.S. and its consequences, firstly, the international stock market crash, on the other. Although it appears that these events mark the beginning and end of a series, the magnitude of the crisis and its causes are not explained so far. One might add that the U.S. housing market cycles and the crash of global equity markets are not unique. We must then consider the framework conditions for such events to assess their scope and make the appropriate corrections.

What is a global financial crisis?

The global financial crisis is manifested in the growth of house prices and food prices, a reduction of jobs in both commercial and government organizations, in the absence of stability and loss of faith in the future. And the causes of the changes are different in different countries (Fackler, 2008).

“As the Great Depression beginning of the twentieth century, the global economic crisis that began in 2008 caused a process that can completely change the global economic system. The new system is expected to increase the role of the state. Perhaps as a result of the financial crisis in the world will be a new world currency, replacing the U.S. dollar”. (Ely, 2009)

Origin and causes

The mortgage crisis in the U.S. in 2007

Immediate predecessor of the general financial and banking crisis was a crisis in the U.S. high risk mortgage loans (subprime) in 2007, that is, mortgage lending low-income people and poor credit history. Due to 20% of the fall in property prices, American homeowners are poorer by nearly $5 trillion. American financier George Soros in Die Welt on 14 October 2008 defined the role of the "mortgage bubble" as "only the trigger that led to the fact that the bursting of a bubble in" [Robin, (2008) and Shankar (2008)]

High commodity prices

In the 2000's has seen an explosion of consumption, accompanied by a steady rise in commodity prices - after the Great Depression of consumer goods in 1981 - 2000. But in 2008 the prices of many commodities, especially oil and food had reached such a level that began to cause significant economic damage (Robert, 2008). In January 2008, oil prices topped $100 a barrel. 11 July 2008 the price of oil of mark WTI reached a record in the history of $147.27 per barrel, and then began to fall - to $61 on Oct. 24 that same year and up to $51 in ...