Introduction
Through several stages of the development the world faces new challenges. One of them has the form of financial crisis. The cut down taking place in 2008 was not the first crisis that slow down the global economy and welfare of the state, while it was not the last one. This paper considers the situation at the financial sector during the spread of financial crisis in 2008, its main reasons and forthcoming consequences. Simultaneously, the author analyzes in this paper the impact of the crisis over the welfare of such states as the United States of America, the United Kingdom, China, etc. For the purposes of this paper, the reports of provident financial organizations as the International Monetary Fond and the state authorities in the abovementioned states are used.
In general, it should be said that the financial crisis of 2007-2008 led to the significant changes in the policies of the developed and emerging economies due to the fact that the countries faced the necessity to reduce the governmental support to the business units, increase tax revenues, decrease interest rates, etc. These and other instruments influence the social policy within the majority of the states that fell within the scope of impact of the financial crisis of 2007-2008.
Causes and Effects of the Crisis
The financial crisis of 2007-2009 has its origin in the American dramatic financial situation which started in the summer of 2007. This situation went further and influenced the advanced economies all over the world. This crisis led to the exposures of several financial imbalances within the growing economies that undermined the activity of banks and other business units in these states. Despite the actions of the leadership of the United States of America to combat the origins of the crisis in the state, it gathered the intensity and spread to the other financial markets (Brusov, 2012).
Besides, the main factors causing the financial crisis of 2008 are the following:
inefficient mortgage lending. Within the USA the majority of the families were provided with the opportunity to gain the loan for the purchase of the immovable property that was no affordable for them. In this respect, the overwhelming amount of the credits and low interest rates cause the disruption of the market.
housing bubble. The monetary policy of the USA at 2007 led to the huge increase in the prices for the immovable property which were not supported in reality by reserves.
global imbalances. Within 2000s the economical development between the world regions was disastrous and evident. In this respect, the USA external deficit was superseded by internal deficit within the governmental sectors of activity.
securitization. The investments and mortgage loans did no bring the expected revenue to the owners so that the repercussions took place in the international level within the global financial system.
lack of transparency in the management of the mortgages and the forthcoming lack in the accountability of the authorities. This reason of 2008 crisis confirms that the crisis was created in some respect in the artificial manner. Within the financial system, the market players usually received mortgages and securities of low quality.
activity of the rating agencies. Within that period of time as well as nowadays, the states and majority of the business units rely on the rating agencies performance and assessment. Due to the fact that the companies relied on such ratings, the investment to some states failed and have not brought the expected revenue for certain period of time.
adoption of the deregulatory legislation. In addition to abovementioned factors, the deregulation approach of the exercising the management of the financial market led to the situation when several financial institutions entered into transactions that are risky per se.
innovations in the financial sphere. Due to the development of the new instruments of the regulation of the market, the infrastructure in this dimension was no ready do such changes so that it did no accustomed.
absence of systemic risk regulation as there was no institution that could exercise the protection and management over the activity of the majority of financial institutions (Gupta, 2012).
The causes mentioned below may be treated as the main factors leading to the development of the financial crisis of 2007 in USA. Contrary to the causes, the effects of this event are diversified. Some states found in the financial crisis the impulses for the perspective development, while the others faced the necessity to rebuild the economy from the initial age.
The United States of America
Given the fact that the United States of America was the first country facing the financial crisis, the fast reaction and response should be taken immediately in order to stop the worsening of the situation. By virtue of participation in the G-7, the USA and other members have agreed to take all adequate measures to stem the crisis. In this respect, the country cut down the policy interest rates in dramatically manner. Within the territory of the USA, the Federal Reserve lowered the standards of the monetary policy, the following rates of the federal funds. Moreover, the Federal Reserve decided to introduce the large-scale asset purchases that allows for the central banks to make the purchases of the certain kinds of the assets in form of governmental bonds and mortgage securities (Tang, 2011).
However, irrespective of the overwhelming legislative acts aimed to improve the situation after the beginning of the financial crisis, the U.S. economy still should seek the instruments to survive. The labour market is passing through stagnation as well as the reduction in the gross domestic product is noticed. Talking about the actions of the state authorities for saving the welfare of the state, the USA may be regarded as the most responsive to the financial crisis (Fein, n.d.). Certain measures were taken prior to 2008, while the most successful steps were elaborated after this period. For example, the President George W. Bush decided to adopt the Emergency Economic Stabilization Act of 2008 in addition to Dodd and Frank Act (Vasudev, n.d.).
In summary, these documents created the new efficient system of the management of the financial transactions exercised at the market. Moreover, the functions of the Federal Reserve and national banks were transformed for the performance of the surveillance over certain industries. In particular, the Treasure Secretary has the power to establish the transactions including the purchase or realization of the troubled assets. The implementation of the measures aimed to recover the financial system of the USA was initiated by the Administration of George W. Bush and was continued by the President Obama.
As to the social policy of the U.S. government upon the financial crisis, the state authorities considered that the welfare of the state is damaged to some extent. Given the overall amount of the population in the USA in addition to the unemployment rate posed the threat to the authorities as the crisis could deepen. In this respect, the government has elaborated the programs that simplified the process of immigration to the USA in order to boost the entrepreneurship and attract the foreign direct investment flow to the country. Moreover, the some portion of financial support was provided to the domestic business unites in order to strengthen their ability to perform in the international level.
The United Kingdom
Considering the actions of the UK authorities for the management of the financial crisis addressing the world system, the leadership of the state faced the problem that the management responses should be developed on three levels: local, national and the level related to the membership in EU zone. In this respect, the country prepared the bank rescue package of 500 billion pounds (Baber, 2014). This plan of reforms should have addressed the recovery of the British financial market and return its reliance before the participants at the market. Moreover, the government of the United Kingdom decided that introduction of short-term loans will provide the opportunity to stabilize the complex banking system existing in the UK (Kleinnijenhuis, Schultz and Oegema, 2014).
With respect to the welfare of the United Kingdom as the independent state and the member of Eurozone, it should be said that situation on elaboration of relevant policies is complex. Before proceeding to the development of domestic policies that should support the local companies, banks, insurances companies etc. the Government of the U.K. should have consulted with the state bodies of the European Union. As the U.K. decided to provide subsidies and certain loans to the companies in the state, the amount should have been negotiated with EU. Moreover, in order to response properly to the financial crisis of 2008, the U.K. put all efforts for strengthening the insurance market so that the population suffer less from the significant increase in prices for certain products. Moreover, the government decided to stabilize the housing market by maintenance of the interest rates for the immovable property that were under the ownership of the individuals according to the credit agreements.
Germany
Germany appeared to be one of the countries that suffered significantly from the spread of financial crisis and its further development. Given the fact that the state is one of the world’s top exporter, the demand for certain groups of products have dramatically fallen. In this respect, the government of the state adopted two packages of reforms that should stabilize the economy of the country. The first package of the legislative acts addresses the banking sphere, while the second refers to the securitization of employment and social security in Germany. According to these reforms, the government of the state recognizes the complexity of the current social situation due to the financial crisis and has decided to reduce taxes for the population (Newman, 2010).
In terms of stabilization of the financial system as the whole, the German government has developed the German Stabilization Act of 500 EURO revenue package that envisages the provision of the financial support to the national financial institutions, funds and insurance companies in order to combat the financial crisis. Moreover, this Act was evaluated by the authorities of the European Union as it could violate the rules on the provision of state aid existing within the territory of the Union. Although, the Stabilization Act was approved and launched. According to the provisions of this Act, the Stabilization Fund is created for the management of the liquidity short falls and surveillance of the capital resources in the authority of the financial institutions (Hopt, Kumpan and Steffek, 2009). Under this legal instrument, the Fund may provide the assistance to the financial institutions in form of financial guaranteed, refinancing of the entities by virtue of the acquisitions, adoption of the risky financial instruments and other assets having the value. Although, the system of the management of the stabilization activity is quite complicated and strict within the territory of Germany as any financial institution seeking for the support on behalf of the Fund should provide the deliberate business plan on the overcoming the crisis. Therefore, the federal government of the state is responsible for the financial support of the German Stabilization Act and its implementation in the reality. Finally, it should be said that the approach taken by the German government should be regarded as efficient as the financial system of the country is regarded as one of the most stable within the members of EU nowadays.
Greece
Considering the impact of the financial crisis of 2008 over the members of European Union, it should be said that Greece was affected the most. In 2010, all the state parties showed the evidence on the growth of the economy and its recovery, while Greece still could not find the instruments that may assist in combating the crisis. Moreover, nowadays the country is in debt financial crisis as the bankrupt and is requesting he financial support from the rest of the world. In 2009, the Greece's debt was lowered to BBB+ level what means the lowest credit rating. Even during the negotiations about the accession to the European Union, the country did not meet the necessary requirements applicable to the perspective members. However, the county succeeded to entry Eurozone (Ozturk and Sozdemir, 2015).
Despite the fact that European Union provides on regular basis the assistance to its members, for Greece it was not enough to receive $100 billion for reformation of its structure in order to get accustomed to the environment existing in EU. Simultaneously, the start of the financial crisis deepens the situation in Greece financial system by increasing the external debt of the country did not have efficient management system of the financial resources (Pagoulatos and Triantopoulos, 2009). Besides, taking about the welfare of the country upon the financial crisis, it should be said that nation is suffering nowadays various mental disorders. This situation is proven by the experts to appear as the response to the financial problems addressing the all population of the country as the people face severe limitations with the usage of the money within the state and entrance certain transactions (Polyzos, 2012).
Greece represents the exceptional case for the consideration of the welfare of the country after the financial crisis. It should be said that sphere of health facilities and services provision were affected significantly as the country can not provide the stable environment for this sphere. Therefore, the population of the country faced the necessity to enjoy the payable health insurances and health services that led to the decrease of the general welfare of the state. Moreover, the unemployment rate achieved the peak among all the countries members of the European Union. Even nowadays, the country is not able to develop the measures that will take the country out of the debt crisis.
China
Given the fact that the financial crisis of 2008 spread from the developed states to the emerging economies, China appeared under the threat as well. The impact of the crisis has been noticed by its influence over the export-oriented light industry in the southern territory of the country (Chen, n.d.). With regard to the financial system, the Chinese banks provided the reports that Western companies suspended the cooperation with Chinese based institutions during the development of the crisis. Although, despite the severe financial crisis, China still so tinier to show economic growth and development in terms of 9.6% in 2008 (Zhang, 2009).
In addition, China was not affected dramatically by the financial crisis of 2008 as the investments of the country were not related to the US real estate market. However, the stock market of the country was damage due to the fact that it was difficult to find the reliable source of capitalization at that times. Besides, the current situation of affairs in the state, confirms the position that country continues to develop. Nowadays, China is regarded as top destination for the foreign direct investment in the world and performs the functions of the major investor to the other emerging and developed economies (Farrell, 2011).
With respect to China’s welfare, the country was not affected a lot with the consequence of the financial crisis at the surplus of the country was one of the main causes of the financial crisis. Moreover, the government of the state simplified the policy on the regulation of the flow of the outward direct investment that led small business entered interested for them markets. Moreover, due to the stability of the Chinese currency and its correlation to US dollar, the social welfare of the country remained stable. In addition, the government introduced the measures that provide the subsidization to the small and medium business units in order to increase the Chinese presence in the international level. The health sector was strengthened as well.
Conclusion
The investigation of the causes and effects of the financial crisis shows that it was the consequence of the constant mishaps taking place in the financial market in addition to the gaps in the implementation of the policy in the local and international level. The several researches and data present the evidence that the financial systems in several states were affected by the financial crisis of 2008-2009 (Agarwal and Samanta, 2014). Even nowadays, the leadership of the countries is working at the continuous implementation of the programs set up by the acts adopted in 2008.
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