GLOBAL FINANCIAL CRISIS

Global Financial Crisis



Abstract

This paper analyses the origins of the sub-prime crisis. It argues that a series of serious policy errors in the United States created the conditions in which the sub-prime lending phenomenon took root, which were then compounded by regulatory developments and further policy mistakes as the credit crisis unfolded. These factors further explain why the sub-prime crisis assumed such global proportions.

Table of Content

Introduction4

Discussion and Analysis5

The Chronology and Causes of the Crisis5

Effects of Crisis6

Income Instability9

Global Response10

Current Scenario in United Kingdom12

Reason for Financial Crisis12

Market Instability13

Domino Effect on other European countries13

Why did the crisis get so severe?14

Impact of Financial Crisis on Aviation Industry14

Cancelled and Deferred Aircraft Orders15

Job cuts in the aviation industry15

Measures to overcome financial difficulty and maintain profitability16

Match capacity with loads16

Increase flights17

Reduce costs17

Manage cash flows17

Reduce fares17

Conclusion17

References19

Global Financial Crisis

Introduction

Financial crisis can be defined as a condition when money requirement rapidly increases as compared to the money supply. A few decades before, a financial crisis was equal to a banking crisis, but today it can also take the shape of a currency crisis. A lot of economists have come up with concepts and theories on how the financial crisis actually develops and how can it be possibly prevented. There is no consent and financial crises are still a cyclical phenomenon. A stock market crash may also be taken as an example of financial crisis (Soros, 2008, 75).

Currently the world is facing a global recession that is causing businesses to close down, unemployment to rise constantly, and government revenues to shrink. Recent happenings suggest that big developed economies may have touched the bottom and have started to recover but still unemployment level is hiking. Various banks and household consumers are having serious difficulty in maintaining their bank balances, and since people are unemployed they are forced to leave the houses they have acquired through sub-prime loans.

Many countries and nations have announced financial support packages for their countries organizations. Many countries have also taken support from International Monetary Fund and World Bank. This financial crisis has exposed various loopholes in the financial systems globally. It has shown that how different economies are related and dependent on each other (Peters, 2010, 32).

Discussion and Analysis

The Chronology and Causes of the Crisis

The global financial system is a complex linked structure of markets and stakeholders. Major participants include the sovereign states, central banks, regulators, rating agencies, investment banks, institutional investors, exchanges, and homeowners. Shocks are transmitted from one node to another via direct foreign investment, correlated assets, and communications links. The complexities and strengths of these linkages have grown over time, decreasing the amount of time required for the disturbances from individual shocks to dampen at each node that is affected. Ensuring the stability of the system falls on regulators such as central banks and agencies that oversee securities firms and exchanges. Market manipulation and fraudulent practices are the focus of law enforcement. In consumer credit markets, abusive lending practices are investigated and concluded when possible. Rating agencies are intended to provide objective estimates of ...