The Fallout from the Global Financial CrisisIntroductionThe global financial crisis, which had been brewing for a while, hit the world in the middle of 2007 and the real effects were seen in the year 2008, when leading world economies started to feel its effect. Prior to this, major economies of the world had experienced a prolonged period of economic boom, when all of a sudden trouble started to appear in the United States and quickly spread to other countries. Within a short time, large financial institutions were collapsing, stock exchanges took a downturn and governments had to come up with rescue packages in order to bail out the financial systems (Munro 2009). In the United States of America, leading financial institutions like the American Insurance Group, Lehman Brothers, Freddie Mac and Fannie Mac started the avalanche of collapse of financial institutions (Gross 2009).
The shortfall in liquidity in these institutions triggered the chain effect that was felt throughout the world. The United States has a significant financial influence in the world and therefore, even countries that were not prone to the financial crisis like China were eventually affected.
This is because the United States is a considerable trade partner with China and once the normal trade is disrupted, China would certainly feel the effect. Other leading economies in the world such as Australia, Germany, Canada, UK and France also felt the sting, but have since then recovered. The cause of this financial crisis, which is regarded as the worst financial crisis ever since the 1930s when there was the Great Depression, can be attributed to risky and adventurous practices that financial institutions adopted in an attempt to make more money at the minimal risk possible (Harding 2010).
The rising cost of mortgages led to banks to target even people with poor credit rating. Banks started to trade extensively on securities, which offered them less risk, and in the process, they could afford to lend more than they had in depositories. At that moment, the value of property in the United States was highly inflated and when people began to sense some trouble, they started to reclaim their securities that owners could not afford to pay.
This led to banks being required to pay more than they could afford and some like Lehman Brothers went under. The government intervened by injecting a stimulus package into the economy, worth US$ 700 billion (Taylor 2010). Question 1Do you consider the global financial crisis and government and organisational reactions to it to be examples of planned or unplanned change? Justify your answer. The global financial crisis raised concerns on the efficacy of the United States business system and its business education. However, this also occurred in Australia.
The question that lingers is whether the recession was foreseen in advance or it just caught many Australian systems unawares. One of the consolation factors that the Australian economists and planners can rest on is the fact that it did not start here, but was because of the happenings that started in the United States (Kennedy 2010).