The global financial crisis is one of the major challenges that our world is facing today. Since 2007, this problem has been setting off where world stock markets fell and large financial organizations have been wiped out or sold at the lowest prices. Even the richest and powerful nations have resorted to expansive bail-out packages to save their large banks and financial institutions. According to Bloomberg, the U.S had spent $9.7 trillion while UK and the rest of the European countries have spent $2 trillion on bail out packages. This global economic meltdown is influenced by various factors specifically the financial crisis in the US and its collapse of the mortgage market that led to the increase in real estate prices, high commodity prices, limitations of monetary policies in various countries and stock market fluctuation. The fall of the mortgage market in the US and the continuous down turn of the housing market in other leading economies have affected more countries throughout the world. As the crisis continued to soar, more complex issues concerning financial institutions began to uncover that further explains the cause of the mortgage market collapse. Some banks turned their loans into securities to manage risks and generate high profits. However, banks that ventured into home loans and mortgages without proper system and management were exposed to high risks which led to their collapse. These losses resulted to reduction of credit access in the entire banking system. When capital reserves ran out, banks turned to government for bail-out. However, bail-outs turned out to be insufficient due to complaints of short selling particularly from Asian nations and allegations of socializing profits.
Over the years, financial institutions made major contributions of the nation’s income while enriching those people who run the industry. These vast riches however resulted to corruption in the government and society. Majority of the blame was directed to Wall Street where most of the influential banks and financial institutions implemented policies that caused these problems. The Americans and citizens of other nations were obliged to pay higher taxes to make up for these financial market’s mistakes. These financial uncertainties have a multiple effect on developing and industrialized nations where commodity prices, soaring fuel costs and the worries of global recession existed.
Recommendations
We need to acknowledge that the main cause of this financial crisis is due to faulty economic policies of some nations who focused on higher profits without considering the risks. Their failure to deal with these problems accumulated the worsening global crisis. The following are some of the recommendations to address these issues:
- Trade regulations should be enhanced by adhering to the principles of free market and open trade relations to promote global growth and employment and reduce poverty.
- Establish and enforce an extensive economic policy resolution based on macroeconomic agreement to restore world economic stability. This process can reduce the unfavorable effects of the financial crisis by supporting emerging market economies and developing nations in strengthening their international financial institutions.
- Governments and parliaments of the most developed countries should cease creating barriers to investment or trading goods and services by reducing or eliminating the implementation of export restrictions.
- Developing and industrialized countries should establish legislative support for reforms and regulatory regimes in its objective to stabilize financial markets and economic development.
Greed and corruption is by far the major culprit of this global economic meltdown. Leading economic countries should consider the concerns of other developing nations and should not be dominant in their implementation of economic theories. Nations should unite and work not only for their own interest but for the common good of all people throughout the world.
