The paper “ The Fallout from the Global Financial Crisis” is a forceful example of the assignment on finance & accounting. The 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 the 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 financial crises 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.
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