The paper "What Factors Caused the Global Financial Crisis" is a great example of a finance and accounting assignment. Most experts in finance matters blame the government’ s policy on housing regulation for the Global Financial Crisis (Chwieroth, 2011). Through its agencies, the government came up with an idea of increasing home-ownership by advancing affordable loans. Prospective homeowners applied for mortgages in large number. Note that a high number of people who applied for mortgages at that period could afford to service the loan. After merely one year, almost thirty million housing loans were outstanding.
The government and its agencies owed almost twenty of these loans. Half of these mortgages were high-risk and a significant number of them appears in government financial records. Since most mortgage holders were unable to service the loans, the default rate became extremely high (Martin, 2011). It became impossible to collect the whole amount advance as credit and as a result, banks and other credit institutions suffered a great blow. Borrowers were not in a position to repay the housing loans. When the banks lost their money, they were unable to advance further credit to deserving customers.
Institutional lending became a major problem (Martin, 2011). In addition, inter-banks risk premium rose from insignificant rate to almost five percent hence making lending among banks expensive. This crippled operations of many institutions in all sectors of the economy (Eichengreen, Mody, Nedeljkovic, & Sarno, 2012). This made the situation worse because most operations, both internal and external dealings paralyzed. This was because borrowing had actually stopped thus most businesses especially the ones that rely on credit could not operate.
This affected economic activities in the whole world leading to public outcry. Q2. Describe two consequences of the Global Financial Crisis in details. When the borrower fails to adhere to the loan repayment terms, it is obvious they property is ceased to recover the money. During the Global financial crisis, most of the borrowers who had applied for mortgages lost their properties including deposits they had initially made to the bank. On the other hand, the banks could not recover the whole amount (Rose, & Spiegel, 2012).
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Beltratti, A., & Stulz, R. M. (2012). The credit crisis around the globe: Why did some banks perform better? Journal of Financial Economics, 105(1), 1-17.
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Rose, A. K., & Spiegel, M. M. (2012). Cross-country causes and consequences of the 2008 crisis: early warning. Japan and the World Economy, 24(1), 1-16.
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