International Financial Markets: Impact of the global financial recession on our lives
Introduction
The financial crisis of 2008 through affecting economies sent important impact on the lives of the public. In result of the crisis, many people had to face layoff and higher living costs. The purchasing power of people decreased. However, the inflation increased, people had to make more efforts and spend more times to keep their household going (Hossain et al. 24). Greater uncertainty contributed to the level of stress and per person workload increased in offices and responsibilities at home increased as well because the downturn resulted in new patterns that contributed to job losses and increased prices (Hossain et al. 35; 49). The consequence of the financial crisis was that people did not have enough money to spend on nutritious food.
There was not a single issue, but multiple issues contributed to the financial crisis. If the crisis is considered from the perspective of government, then the policies of government contributed to the financial crisis immensely (Taylor). The interventions and actions of government just not caused financial crisis but also played a great role in prolonging the crisis and dramatically worsened the situation. The major cause of the crisis was the frequent monetary excess, bust by following the housing boom led towards default that led towards inevitable boom and bust (Taylor). Researches revealed that the policy of setting lower interest rate encouraged the monetary excesses that caused boom because the greater the country has the degree of monetary excess the larger the housing boom is (Taylor). For several years, the policies of government promoted the irresponsible financial practices and even contributed in making the things worst through the bailout initiatives of worst miscreants such as Freddie Mac and Fannie Mae (Taylor; Salsman). The policy makers could not diagnose the crisis correctly and with the aim of providing more liquidity TAF (Term of auction facility was created by Fed) that contributed to the crisis. Secondary in response to the crisis the federal fund rate was reduced to 2 percent in 2008 from 5.25 percent in 2007. Such sharp decrease in rate resulted in the sharp depreciation of the dollar and a huge increase in the prices of oil. In result of these actions during the crisis, the prices of oil doubled and before the government increased the rate, the damage had been done (Salsman; Taylor).
Financial crisis from the perspective of banks
If from the perspective of banks then this crisis occurred due to the increased volume of loans. Banks in just a few years made a huge amount of money on loans. Lending of huge amounts led organizations out from the financial market; approximately 31 percent went to housing property that pushed the prices of houses more rapidly as compared to wages. The level of personal debt is increased more than incomes that some people could not repay their loans, and when banks felt the danger, they reduced their lending that resulted in reduced prices. This means that people who borrowed with the aim of speculating on rising prices had to sell out their assets for repaying their loans. In this way, the prices of houses dropped and the bubble burst. This situation created panic and banks further cut their lending due to which downward spiral began, and the economy tipped into recession. After the crisis banks decided to refuse to lend and further limit the lending amount. The problem is that when people repay their loans, the money disappeared from the market; it is as the oil is drained from the car. Because of these banking policies, the economy slowed down, and prices decreased. When prices and wages were falling in the economy lending automatically became expensive. In this way, banks just not contributed in crisis, but played the role in lengthening the crisis further (Positive Money).
Financial crisis from the perspective of general public
Only government and banks were not involved in the financial crisis, but the public also played an important role. It is considered that lack of regulations regarding financial derivatives led to the global financial crisis. According to economists, the collapse of financial derivate triggered the crisis. Financial derivatives also recognized as mortgaged assets that include subprime and prime assets. However, the fact is that the overinvestment of general public in mortgage and house financing contracts was also the reason for the crisis. The global financial crisis can be attributed to several factors from which one was the failure of homeowners in meeting their payments of the mortgage. In last few years, the home foreclosures’ rate had risen radically just because of the default of public on residential mortgages that resulted in the in the meltdown of economies throughout the world (Carol Blenda).
Conclusion
The analysis disclosed that multiple causes exist for the global financial crisis of 2008 and this crisis affected the lives of the general public through affecting the overall economies. The financial crisis affected the social lives of people, as they do not have enough money to spend on parties and entertainments (Hossain et al. 5; 22-35). Even, people’s spending was modest on celebrations such as festivals and weddings.
Works Cited
Carol Blenda. My Perspective on the Global Financial Crisis, Political and Economic Approach. August, 2012. Online. 2 Apr. 2016. <https://blogs.harvard.edu/carolblenda/2012/08/06/my-perspective-on-the-global-financial-crisis-political-and-economic-approach/>
Hossain, Naomi., Bridget Byrne, Aidan Campbell, Elizabeth Harrison, Bebhinn McKinley, and Pasha Shah. The impact of the global economic downturn on communities and poverty in the UK. JRF. Mar. 2011. Online. 2 Apr. 2016. <https://www.jrf.org.uk/sites/default/files/jrf/migrated/files/experiences-of-economic-downturn-full.pdf>
Positive Money. The financial crisis happened because banks were able to create too much money, too quickly, and used it to push up house prices and speculate on financial markets. 2013. Online. 2 Apr. 2016. <http://positivemoney.org/issues/recessions-crisis/>
Salsman, Richard M. The Financial Crisis Was A Failure Of Government, Not Free Markets. Forbes. 19 Sep. 2013. Online. 2 Apr. 2016. <http://www.forbes.com/sites/richardsalsman/2013/09/19/the-financial-crisis-was-a-failure-of-government-not-free-markets/#7221a430449e>
Taylor, John B. How Government Created the Financial Crisis. Feb. 2009. Online. 2 Apr. 2016. <http://www.wsj.com/articles/SB123414310280561945>
