Reflect on our class discussion and documentary regarding the Global Financial Crisis (GFC). Explain the
sequence of events that lead to the GFC. If you could remove one events in this sequence, do you
believe the Global Financial Crisis would have still happened?
Now, think about your country of origin (i.e., China, India, Bangladesh, etc…). Do you think this same
sequence could cause a crisis there? Would removing the same event have the same expected impact as
in the case of the US economy?
This period also saw a rapid expansion in mortgage backed securities (MBSs) whereby assets such as these were bundled together and sold off by banks, allowing them to take advantage of higher returns than those available through traditional savings accounts. At this time ratings agencies, who were responsible for assessing the riskiness of such investments based on their underlying components, gave MBSs high marks due to limited defaults seen in recent history which led investors to believe they were low risk compared to other securities.
However, when defaults began rising sharply starting in 2006 due largely because borrowers had taken out ARMs whose rates had increased significantly it triggered a chain reaction which resulted in losses for many financial institutions holding large amounts of MBSs and ultimately culminated in one of worst recessions since the Great Depression.
In my opinion if one event could be removed from this sequence I would say it is important that there was more effective oversight over both lenders’ practices as well as ratings agencies ensuring that lending standards remained tight even during periods where demand was high while still allowing individuals with poorer credit scores access home ownership opportunities. Had these measures been implemented effectively then I do believe we could have avoided at least some aspects of what transpired during the GFC such as severe losses incurred by banks due to risky investment decisions driven by overly optimistic assessments about their underlying assets.
The Global Financial Crisis (GFC) was a period of economic instability which began in 2008 due to the collapse of the housing market in the United States. This crisis led to an increase in unemployment, widespread business closures and stock market crashes across many countries around the world.
The primary cause of this crisis was a lack of regulation on financial institutions combined with buyers taking out mortgages they could not afford. This created a bubble which eventually burst as individuals were unable to make their repayments, leading to huge losses for banks and other lenders.
In response, governments implemented various measures such as increasing capital requirements for banks, providing bailouts and stimulating national economies through additional spending. These policies helped stabilize financial markets and set the stage for eventual recovery but there are still lingering effects today such as rising levels of inequality and stagnant incomes amongst those most affected by these events.
Ultimately, the GFC serves as a reminder that effective oversight is essential if we are to avoid similar disasters in future.