Essays on The Fallout from the Global Financial Crisis Essay

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The paper "The Fallout from the Global Financial Crisis" is an outstanding example of an essay on macro and microeconomics. The financial crisis globally started in mid-2007. Stock markets in many countries fell by significant amounts and many financial institutions collapsed or had to be bought out. Governments had to offer financial institutions rescue packages to bail them out. The global financial crisis began when banks and financial institutions offering mortgages changed the interest rates from being fixed to being variable. Many homeowners who had acquired homes thinking they could easily repay them were unable to pay their mortgages leading to foreclosures.

Since the market prices for houses had dropped significantly below the mortgage loans led to huge losses to financial institutions. This was the case in many nations of the World. The purpose of this report is to examine whether the reactions of governments and institutions to the global financial crisis were planned or unplanned. It will also deal with the reasons why people and organizations would resist the changes brought about by the global financial crisis and whether the reactions of the Australian government to the global crisis are developmental, transitional or transformational change. The scope of this report is Australian though it will also deal with other countries such as the United States and China.   Are the Governments and organizational reactions to the global financial crisis planned or unplanned change? Planned change in an organization is aimed at improving the effectiveness at any of the four different levels namely technological capabilities, organizational capabilities, functional resources, and human resources.

Planned change is a deliberate action on the part of the organization.

Unplanned change is when unforeseen circumstances force an organization to change. Unplanned change is mostly as a result of external forces such as globalization, managing ethical behavior, technological change, and workforce diversity. The global financial crisis leads to governments and organizations making unplanned changes. This is because they had to make an adequate plan to cater to the crisis. The following changes were made to deal with the financial crisis. The bursting of the housing bubble in the United States is what triggered the global financial crisis. This was followed by a fall in the prices of mortgage-backed securities and the collapse of hedge funds holding such securities.

The situation was no different in Australia, though the problem was much smaller than in the United States. Australia companies that relied on financing from overseas were unable to deal with the refinancing of maturing debt. The most affected companies in Australia were Centro, ABC Learning, Allco, and MFS. Australian banks were faced with increased challenges because they are the biggest borrowers in the Australian economy. Banks borrow funds from offshore markets to finance Australia’ s increasing borrowing habit.

The global crisis leads Australian banks to pay very high margins on the borrowings they had obtained from US and European banks. The Reserve Bank in Australian like many central banks in the world had to inject cash into the financial system to deal with the liquidity crisis. In the United States mortgage companies Freddie Mac and Fannie Mae were unwilling forced into nationalization due to pressure from their Chinese and Japanese investors. This move resulted in the Lehman Brothers a leading investment bank to collapse. Banks were faced with a deeper crisis in three ways; banks faced the risk of solvency, an interbank lending panic was created by the change in Federal Reserve policy and investor panic in the stock market resulted in bank shares losing value.

Since banks lend loans as a fraction of their capital, the decreasing share prices led to banks refusing to lend money. This threatened the stability of the global economy. An effect that was felt throughout industrialized countries such as the United States (US), United Kingdom (UK), and Continental Europe.

Governments did not plan to help out the financial institutions but were forced by external factors such as pressure from investors. This can, therefore, be categorized as unplanned change. Banks' refusal to lend out money is not a normal thing in any bank's order of business. Banks make a bulk of their money from interest on the loans they advance their customers. Therefore a policy change to refuse to advance loans as a way of dealing with the economic crisis is an unplanned change since it is not a policy that was made willingly but as a result of the crisis.


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