Essays on Globalisation and the Aftermath of the Global Financial Crisis: Theory and Practice Coursework

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The paper "Globalisation and the Aftermath of the Global Financial Crisis: Theory and Practice" is a good example of a macro and microeconomics coursework.   Between late 2007 and 2010, the world was in a global recession. Leading economies such as the US and the UK were in financial turmoil, and the effects trickled down to other countries such as Germany and France. Two leading economies not severely affected by the crisis were China and Australia. The recession was characterised by high food prices, fall in general demand, fall in housing prices, higher energy costs and unemployment around the world.

Twenty-seven million people were rendered unemployed in 2009, increasing g global unemployment to over 200 million, the highest level ever (Swan 2010). These elements combined to destabilize the global economy that led to negative growth rates in GDP in a number of countries. This paper assesses the dimensions and causes of the crisis, and how Australia, Europe and North America fared during the crisis and after and also evaluate the free-market economic theory in the aftermath of the Global Financial Crisis in regards to immigration. Causes of the financial crisis There are different theories on what caused the 2008 global financial crisis.

A report by Brookings Institution economists Martin Baily and Douglas Elliott acknowledge three different theories (Thomas et al. , 2011). The first is that the crisis was caused by the US Federal government through housing market intervention through Fannie Mae and Freddie Mac. This intervention inflated a housing bubble that triggered the crisis. The second theory brought forward by the report is that banks greedily manipulated the financial system and politicians capitalised on the opportunity at the cost of homeowners.

The third theory is that there relaxed policies and failure of supervision of the financial market by the US government. However, it is interesting to note that all these theories point to the fact that the crisis started in the US and was felt across the world with major economies suffering at different degrees. An alternative theory opposed to the three theories suggests that the crisis was caused by a culmination of ten factors. Ten factors combined to cause the crisis hence attributing the crisis to just one factor is not realistic.

The factors listed in the fourth theory by Thomas et al. (2011) explain a domino effect that started way back in the last millennia. The first and second factors identified include a credit bubble in the late 1990s in the US and Europe with rising housing prices. This was followed by excess liquidity in the market. A third factor was triggered by the above conditions in the form of increased non-traditional mortgages in an insufficiently regulated market. Many borrowers took mortgages which they could not pay.

As individual homeowners failed to service their mortgages, highly leveraged institutions incurred massive losses. This was a result of failed credit rating which would have protected such institutions (fourth factor). In essence, mortgages were turned into toxic assets. Credit rating agencies, whether knowingly or unknowingly, wrongly rated such securities as safe investments leading to financial institutions amassing highly correlated housing risk (5th factor). In a bid to rescue their situation, the institutions funded such exposures with short-term debts (6th factor). A high number of fans starved institutions with exposure to collapsing assets in form of housing could trigger a chain reaction where the failure of one firm led to the failure of others (7th factor).

Other firms, in unrelated cases or markets, were engrossed in a common shock (8th factor). Failure or merger of a number of institutions caused a panic in the market (9th factor) leading to a lack of trust and confidence in the financial system leading to the eventual financial crisis.

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