RECENT FINANCIAL CRISIS

Origins of the Recent Financial Crisis

Origins of the Recent Financial Crisis

Introduction

The global financial crisis, brewing for a while, really started to show its effects in the middle of 2007 and into 2008. Around the world stock markets have fallen, large financial institutions have collapsed or been bought out, and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems. On the one hand many people are concerned that those responsible for the financial problems are the ones being bailed out, while on the other hand, a global financial meltdown will affect the livelihoods of almost everyone in an increasingly inter-connected world. The problem could have been avoided, if ideologues supporting the current economics models weren't so vocal, influential and inconsiderate of others' viewpoints and concerns.

The present international financial turbulences stand as the most negative financial crises in the last century, perhaps with more devastating effects than ever before. The overall international financial system, almost all individual national economies and especially the vulnerable transition economies of South East Europe are affected. It has been observed that during the global financial crisis occur in 2008, many countries, to hide their level of debt and to meet the deficit and debt requirement by supra national bodies like EU and IMF, has used PPPs and PFIs concept. This has created difficulties in accounting treatment of these aspects. This paper would try to explore the effects of misusing PPPs and PFIs approaches during global financial crisis, as well as the problems it has caused in accounting treatment process (Abed, 2002, pp 10-15). As unbiased accounting reports is of accounting is of high importance for everyone including foreign, national and local investors as well as common people, so that people would realize the current financial situation of the country and would critically analyze the ongoing policies formulated by government to overcome such issues. On the other hand, if people have clear picture of their country's economy, this might affect the political system, as one can easily witness in America, that how financial situation has changed people's mind. (Alvarez et al., 1998)But due to abusive application of PPP and PFI approaches, it is becoming more and more difficult to treat these aspects fairly in accounting. (Ashcroft, 2002, pp. 44-55)

Effects of Financial Crises

Developing countries' access to global capital markets did not improve monotonically since the early 1990s. It was interrupted on many occasions by emerging market financial crises that were mostly regional. These financial crises consisted of various combinations of widespread crises of domestic banking systems, currency collapses, and defaults on sovereign debt. In each of the cases domestic capital markets were severely impaired by the crises themselves and because of the recessions that followed and, crucially, balance sheet effects that rendered many banks and non financial firms technically insolvent overnight. Thus, while demand for external financing of any kind tends to fall during recessions because of economic uncertainty, decline in the demand for foreign ...