The global economic crisis of 2007-2012 is described as the most serious economic, global crisis since the great depression. The signs of a global crisis started showing in mid 2007 and into 2008. According to Elliot (2011), the global financial crisis took place in five stages with the first phase of the global crisis began in around July/August 2007 with the apprehension in the banking system. The BNP Paribas announced it was bringing to an end its activities in three hedge funds that were particular to the US mortgage debt. This led to distrust among banks, they stopped doing business together, and what is today known as the credit crunch. It got worse a year later after the United States government allowed the investment bank Lehman Brothers to go bankrupt in September 2008. This marked the second phase of the global crisis, or what is referred to as the sub-prime crisis and the eventual housing bubble. The third and fourth phase came in the winter of 2008-2009, with the coordinated action of the G-20 group of developed and developing countries who cut interest rates cut and introduction of fiscal stimulus package as an attempt to prevent a recession. However, this is did not turn around the global economy as international organizations stated to collapse and individual nation follow their own goals. The fifth phase was in May of 2010 when focus changed from the private sector to the public sector (Elliot, 2011).
According to an article Financial Crisis Was Avoidable Inquiry Finds by Sewell Chan in 2011, the global economic crisis was avoidable. According to the article, the financial crisis was caused by failure in the government policy mismanagement, in corporate bodies and neglectful risk taking by Wall Street. The federal inquiry that carried out the research blamed two administrations; the Federal Reserve and additional controllers for allowing a catastrophe. The global crisis has on a significant extent caused by these two administrators for allowing sloppy, mortgage loans, extreme packaging and trade of credit to investors and dangerous waging on securities backed by the loans. I agree to the writer of the articles. The global financial crisis was caused by greed of financial institutions and their ineptitude. Additionally, the government failed to put strict regulation that would regulate these financial institutions (Chan, 2011).
The home building industry had for years contributed to economic growth. Investment in residential building made a enormous straight constructive input to GDP. Purchasing of homes is always accompanied by purchases of home furniture and home appliances which creates consumer demand. Additionally, the rises in prices of houses lead to rise in household wealth. However, in as early as 2005 prices of houses stopped to rise and construction of residential homes slowed down. In 2006, there was a seven percent decline and an eighteen percent in 2007, 2008 saw a twenty-one percent decline and the first quarter of 2009 saw a 38 percent decline at an annual rate. This saw a loss of 13 trillion dollars in the household industry from its peak to the end in 2008 (Bailey, & Elliott, 2009). The signs had been there for a long time and the Federal Reserve did not take any action.
The worldwide monetary crisis was not a product of natural calamities but human error and thus was avoidable.
Baily, M & Elliott, D., (2009).The US Financial and Economic Crisis:
Where Does It Stand and where Do We Go From Here? Retrieved from
http://www.brookings.edu/~/media/Files/rc/papers/2009/0615_economic_crisis_baily_elliott/0615_economic_crisis_baily_elliott.pdf
Chan, S., (2011). Financial Crisis Was Avoidable, Inquiry Finds. Retrieved from http://www.nytimes.com/2011/01/26/business/economy/26inquiry.html?_r=2&scp=1&sq=financial%20crisis%20was%20avoidable,%20inquiry%20finds&st=cse
Ellliot, L., (2011). Global Financial Crisis: Five Key Stages 2007-2011. Retrieved from
http://www.guardian.co.uk/business/2011/aug/07/global-financial-crisis-key-stages
