Financial crisis 2008
The U.S financial institutions provided services to the citizens whereby the mortgage loans were given out without securities and rate of interest. This was extended to the point that the period repayment and its terms were not logical as the borrowers could not meet the terms (Savona, Kirton, & Oldani, 2011). It led to the entire market interest rate to abruptly rise hence interrupting to all the plans that the financial institution had in their plans. The mortgage lenders gave out the money in the form of loans without putting in place the appropriate measures. The financial institution never saw the risk of interest rate changes hence no interest rate was charged to the loans that was given (Ghosh, Ghosh*Cnp*, & Ortiz, 2013).
The borrowers had no limit of the amount hence they took huge loans for their investment. The most affected financial institution are banking industries, insurance companies, mortgage lenders, commercial banks and the loan and saving institution. An estimate of the amount that was with nonbank financial institutions is more than half of the world debt. The amount that was out induced inflation whereby the prices were not in a position that was controllable (Moyers, (U.S.), WNET (Television station: New York, & (Firm), 2008). High prices caused the market rate of interest to hike making the commodities in the market to become more expensive. This intensified to the point that the central bank has to intervene and eject paper money in the economy (Savona, Kirton, & Oldani, 2011). It had to lend money to the federal government to settle the prices hence bring back inflation to normal. The Federal Reserve gave out more than one trillion dollars to the respective government trying to control the inflation. This was in association of the European central bank.
The central banks intervened to enhance the liquidation that was supposed to ease the situation (Moyers, (U.S.), WNET (Television station: New York, & (Firm), 2008). This was made through lending the paper money to the government. The act of accepting the high quality assets that were owned by the banks inform of the collaterals hence financing them to settle their debt (Moyers, (U.S.), WNET (Television station: New York, & (Firm), 2008). The aim was to increase the money circulation and position in the banks. The main goal of the banks was to ensure the publicity of the financial institution is restored hence the confidence restored. The stimulation of the inflation brought the macroeconomic crisis hence the central bank had to intervene and correct the situation.
In 2008, the matter concerning the crisis was an international debate where the central banks had to take over. In England, the central bank launched a special liquidity scheme that was concerned in the application of the funding other commercial bank (D'Apice & Ferri, 2010). It gave the Canada bank a chance to give loans to another institution by accepting risky collateral. It was done through three steps that were viable in the financial market during the crisis period. The first step consists the use of cap on the amount of the money that the bank had to lend to other institutions or the investors. These are the amount of the loan that is given to be capped for easier identification and to benefit the set advantages like low interest rates (D'Apice & Ferri, 2010).
The second regulation is on the swap that would be available for the amount that would be borrowed on with a period of six months. This would be upon the request from the banks and other financial institution (Moyers, (U.S.), WNET (Television station: New York, & (Firm), 2008). The last consideration is on the renewing the amount to be borrowed again. This was extended to up to three years and the amount would last for just one year. This consideration was awarded to the bank of Canada to assist in serving the situation and the market that was diminishing. The permission that was given to the Canada bank was very essential in combating the economic status as it tried in controlling the financial level and macroeconomic crisis as inflation (Ghosh, Ghosh*Cnp*, & Ortiz, 2013).
The governments mostly of the western countries through their central bank imposed new regulations to cater for the situation and prevention of the reoccurrences. This was aimed in controlling the financial instruments in the market hence the financial institution (Moyers, (U.S.), WNET (Television station: New York, & (Firm), 2008). This regulation was supposed in setting the interest rates on lending as well in the deposit taking. The collateral that was used in borrowing of the finance was also to be reviewed for the banks to asses before lending. The threat of the inflation and recession had an effect in the entire globe as well in all market sectors. In china, the prices of food and gasoline were highly affected making the living standard of the citizens especially the middle income earners to be difficult (D'Apice & Ferri, 2010). The governments of the respective countries sought means through the central bank to cater for the inflation.
Setting the interest rate accordingly helped in controlling the situation from more advanced effects (Savona, Kirton, & Oldani, 2011). The pressure that was set by the 2007 to 2008 inflation crisis brought about in the global market prices (Savona, Kirton, & Oldani, 2011). This decreased the purchasing power of the individuals as well to the organizations. The effect on the organization, inflation made the threat of unemployment and job loss of the employees. The United States government had to provide 150 billion dollars as tax refunds. Each person had to get 600 dollars for repayment of their debt and increasing their savings.
The trend that was followed by a number of the qualities that covered the entire financial market has to have a standard global rule (Moyers, (U.S.), WNET (Television station: New York, & (Firm), 2008). This is in terms of the securities and derivatives in the form of capital and equity that are supposed to be purchased by the financial institution and investors. The central banks of respective countries have the duty as they give the stand of their respective government. The crisis on the economic is not of a single country hence an international concern (Savona, Kirton, & Oldani, 2011). The introduction of the financial monitoring body such as World Bank and International Monetary Fund helps in controlling the financial crises and inflations. They help in settling the financial disputes and having the overall mandate to take measures to combat the inflation as well as other macroeconomic variables.
References
D'Apice, V., & Ferri, G. ( 2010). Financial instability : toolkit for interpreting boom and bust cycles. New York: Palgrave Macmillan.
Ghosh, D. K., Ghosh*Cnp*, D. K., & Ortiz, E. ( 2013). The Global Structure of Financial Markets : An Overview. Hoboken: Taylor and Francis.
Moyers, B. D., (U.S.), P. B., WNET (Television station : New York, N., & (Firm), F. f. (2008). Bill Moyers journal. / Mortgage mess. Hamilton, NJ : Films for the Humanities & Sciences.
Savona, P., Kirton, J. J., & Oldani, C. (2011). Global financial crisis : global impact and solutions. Farnham, Surrey, England: Burlington, VT : Ashgate.
