Impact of 2008 Financial Crisis on Global Markets

This assignment delves into the far-reaching consequences of the 2008 financial crisis on a global scale. It examines the multifaceted impacts across different sectors, including banking, stock markets, and international trade. The papers explore themes such as risk management failures, government responses, and long-term economic repercussions. A comprehensive understanding of this pivotal event in recent history is provided through academic research and analysis.

Running head: CORPORATE FINANCE
Corporate Finance
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Introduction:...............................................................................................................................2
Discussing the possible causes of the financial crises:..............................................................2
Identifying possibility in the second occurrence of GFC:.........................................................4
Depicting the impact of GFC on other countries and in Australia:............................................6
Depicting the proposed reforms used in controlling the financial crisis:...................................7
Conclusion:................................................................................................................................8
Reference and Bibliography:....................................................................................................10

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Introduction:
The aim of the assignments is to evaluate the overall impact of financial crisis on
company’s performance and country's economic condition. The assessment mainly identifies
the overall causes of financial crisis, which led to the decline of world financial market. In
addition, assessment also aims in identifying the possibility of another global financial crisis
with could incur in future. Moreover, the impact of financial crisis on the economic condition
of Australia also analyzed, which could help in identifying the problems faced by Australian
companies. Furthermore, the relative measures taken by the Australian government for
curbing the overall financial crisis is also depicted in the assessment.
Discussing the possible causes of the financial crises:
There were many factors which could be identified as be possible cause for the rise of
the financial crisis. These factors are depicted as follows which paved the way for financial
crisis.
Increment in interest rate:
The rise in interest rates was one of the main factors that led to the rise of 2007
financial crisis. The rising interest rates directly increased the overall payments that were
conducted on mortgages, which in turn increased installment value of the borrower. This
increment in the overall interest payment lead to mass defaulting of borrowers due to
unavailability of relevant income to support the expenses. Previously the overall interest rates
maintained by FED was low as compared to the industry during the financial crisis. The
interest rate during the financial crisis mainly rose to the levels of 5.25%, which was
substantially high and increased default rate from borrows (Armantier et al. 2015). This high
default rate from mortgage borrowers directly reduced credit rating of the mortgage Bond

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held by Financial Institutions. They were not able to acquire the required level of payments
from there borrowers, which in turn hampered the capability to smoothly conduct the
operations.
Increment in securitization of funds:
The second major factor which boosted the rise of financial crisis was the
securitization funds that was conducted by Financial Institutions. In addition, the use of
mortgage backed securities and credit default swaps securities was used by the financial
institution to convert bank loans into mortgage bonds, which was then resold in the financial
market. The provision that was provided to Financial Institutions to convert their loans into
one mortgage bond, which was rated by credit agencies. Companies were buying the
Mortgage bonds such as MBS and CDS, as AIG Insurance Company supported them. The
use of credit default swaps was mainly helpful to bank in generating adequate capital for
supporting more loans. problems related to securitization mainly increased when credit rating
on mortgage bonds work fixed by banks, which led to the accumulation of junk securities in
portfolios of organization (Benetrix, Lane and Shambaugh 2015). Therefore, the start of
default rate by borrowers declined value of assets and revenue generation capacity of
companies, which led to the augmentation of financial crisis.
Deregulation of different laws:
The deregulation of different laws in US mainly reduced the restrictions on banks,
which led to the unethical measures conducted by financial institution to support their profit
goals. The deregulation of Glass Steagall Act of 1933 and Commodity Future Modernization
Act mainly led to the foundation of the financial crisis. These deregulations directly reduced
control on banks who accumulated high risk assets and raise their risk to reward ratio
(Drydakis 2015). Now the banks were accumulating high risk assets, which they eventually

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traded in capital market to acquire additional funds to increase their profitability. The
deregulations conducted by the US government mainly allowed Financial Institutions and
banks in US to accumulate high debt, which could be seen during the financial crisis.
Increment in growth of subprime mortgages:
The last factor that could be identified as the overall measure, which led to the rise of
financial crisis, where the incremental subprime mortgages. Due to the regulations of US,
government banks were able to eliminate the read lines in poor neighborhood and provide
loans to everyone in US. The enforcement of financial institution Reform recovery and
enforcement act directly reduced overall regulation on US banks. Bank such as Fannie Mae
and Freddie Mac were mainly responsible for converting the bank loans into mortgage bonds,
which were then sold in secondary market. This adequate increment in ability of the banks to
raise funds to support their operations without attaching with relevant risk directly increased
operational capability of US banks (Feldkircher 2014). The banks were able to accumulate
loan, which were then transferred to Fannie Mae and Freddie Mac, who are responsible to
convert these loans into mortgage bonds and sell them in secondary market by providing the
bank with additional capital to support the financial activities
Identifying possibility in the second occurrence of GFC:
There is a possibility that the Great Financial Crisis incurred during 2007 could occur
or repeat itself again in future. This statement is mainly concluded after seeing the overall
problems incurring all around the world. The measures that was used by US and other
countries to control the great financial crisis was not adequate, as the actual problem was not
controlled by the government (Floyd, Li and Skinner 2015). This could eventually result in
future problems that might incur in financial sector of the world. After 2012 small recessions
could be seen during 2013 and 2016, which was led by low financial capability of developed

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countries in controlling their debt. The 2012 recession was mainly conducted, due to the
weak measures taken by government for controlling recession in 2008. Whereas. the 2016
recession came due to the debt obligation of Greece, as they were going to default in their
payment.
Reducing oil prices:
The second factor that could be identified as the declining oil prices all around the
world, which is relatively due to reduce demand from manufacturing and production
companies. previously the amount of oil usage in manufacturing and production sector was
immensely high. which was driving maximum of the world economy (Goh et al. 2015).
However, declining oil prices is substantially worsening the problems of oil producing
countries, which is reducing the ability to generate adequate cash flow to support the
activities. this could eventually increase the chance of default by many countries on their debt
payments due to reduction in their profits.
Problems in Chinese economy:
From the evaluation of different news, it is assumed that Chinese economy has been
declining over the past few years due to slow growth in manufacturing. Chinese government
is involved in inflating there share market by continuously forcing investors to increase value
of the shares (Haas and Lelyveld 2014). This trend as assumed by different economics and
analyst is relatively to end due to the pressure from external forces such as global market.
This would eventually argument second financial crisis, which would engulf financial sector
of the whole world.
High increment in debt accumulation by countries:

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Third factor that is the pricing that accumulation conducted by countries such as
Greece and other developed Nations. these countries are mainly increasing the debt
accumulation to support their capital expenditure, while the actual income is relatively low in
comparison to the expenses incurred each fiscal year. The debt accumulation of USA is
relatively higher then maximum of the countries all around the world, if the government is
not able to pay the debt then a second session could start and trigger financial meltdown of
the hold world (Helleiner 2014).
Depicting the impact of GFC on other countries and in Australia:
The great financial crisis had negative impact on many countries all around the world,
as it affected financial capability of US banks to drive growth. United States is mainly
considered to be one of the major importers of good all around the world and the rise of the
financial crisis from US mainly impacted the entire financial sector of the world (Lahmiri
2015). The financial crisis had impact on both developed and developing countries similarly,
as the financial sector liquidated due to low credit availability. The impact of financial crisis
on the economy of different countries are depicted as follows.
Problems reason in developing countries from financial crisis:
Developing countries mainly rely on Foreign direct investments that is provided by
developed countries. The reduction in financial capability of developed countries due to lack
of adequate capital provided by banks. This lead to mass selling in developing countries
where foreign direct investments were conducted, as investors from developed countries
needed capital to ensure their continuity (Luchtenberg and Vu 2015). This mass selling
mainly hampered performance of the capital market, which in turn reduced growth prospects
for developing countries.
Problems faced by developed countries:

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Banks present in developed countries mainly had investments in mortgage bonds,
which was portrayed by US banks. This excess exposure to in US mortgage Bond mainly
increased losses of these banks in developed countries, which in turn declined their Financial
condition. Developed countries due to free trade policies were greatly impacted by the fall of
major companies in US, which were interrelated to their import and export system (Nelson
and Katzenstein 2014). Economics developed countries are interrelated, which directly
affected financial capability of companies and negatively resulted on the capital market.
Impact of financial crises on Australia:
The financial crisis mainly hampered economic condition of all the countries around
the world, among which Australia is also listed. Australian economy during the financial
crisis took a deep steep, which directly resulted in liquidation and closing of major firms.
Companies were mainly not able to generate higher returns due to the excessive selling
pressure portrayed by investors. Companies in Australia mainly lost control over their debt
accumulation, which declined actual share value of the company. Many jobs in Australia
were lost due to the augmentation of financial crisis, as companies were not able to survive
during the credit stagnation period. Australian companies such as BHP Billiton, Woolworths,
we farmers and other branded companies faced losses during the financial crisis (Pianeselli
and Zaghini 2014). This negatively impacted the overall capital market of Australia, which
further hampered progress of small and medium companies. Many small and medium
company owners were forced to liquidate due to cash stagnation in the financial sector.
Depicting the proposed reforms used in controlling the financial crisis:
Adequate reforms were actually presented during the financial crisis which help in
reducing the negative impact of the crisis. Relevant acts and preventions were conducted by
the US government, which was followed by maximum of the countries all around the world.

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The financial injection was inputted by the government in their economy to boost their
financial sector and improve credit abilities of banks (Rajmil et al. 2018). Taxpayers money
was used to fuel the economy once more, as it helped in improving the financial position of
Companies.
The US government mainly used Housing and Economic Recovery Act 2008 for
reducing the negative impact of financial crisis, where $300 billion worth mortgage was
insured. This insurance was mainly provided by the US government with the help of FHFB,
OFHEO and GSEs, which help in reducing the negative impact of the financial crisis. The
insurance conducted by the US government mainly helped in stabilizing the housing sector,
which was collapsing due to unstable payments (Reddy et al. 2014).
Control on lending practices was so implemented by the US government, which
helped in reducing the risk accumulation that was conducted by banks and Financial
Institutions. The regulation mainly aims and impacting the overall lending practices of banks
and Financial Institutions, which was the main reason behind the rise of financial crisis.
Adequate measures were taken by the Federal Reserves, as the first step towards financial
crisis was created by them (Treeck 2014). The increment in interest rates conducted by FED
was the main reason behind the default in mortgage bonds. Hence, for curbing the financial
crisis FED directly reduced interest rates and provided adequate credit to the Financial
Institutions.
Conclusion:
The assessment is mainly focused on identifying the overall impact of financial crisis
on economic condition of different countries. Financial crisis evaluation is conducted
adequately in the current assessment, which could help in identifying relevant factors which
led to the rise of the crisis. In addition, relevant measures that was taken by government to

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control and reduce the negative impact of financial crisis is also directed. Moreover, it could
be understood that next financial crisis is upon us, as the financial sector has not been
strengthened by the measures used by government on previous financial crisis. Therefore, it
is a possibility that the financial crisis might occur in future due to a weak financial position
of countries such as Greece.

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Reference and Bibliography:
Armantier, O., Ghysels, E., Sarkar, A. and Shrader, J., 2015. Discount window stigma during
the 2007–2008 financial crisis. Journal of Financial Economics, 118(2), pp.317-335.
Bénétrix, A.S., Lane, P.R. and Shambaugh, J.C., 2015. International currency exposures,
valuation effects and the global financial crisis. Journal of International Economics, 96,
pp.S98-S109.
Drydakis, N., 2015. The effect of unemployment on self-reported health and mental health in
Greece from 2008 to 2013: a longitudinal study before and during the financial crisis. Social
Science & Medicine, 128, pp.43-51.
Feldkircher, M., 2014. The determinants of vulnerability to the global financial crisis 2008 to
2009: Credit growth and other sources of risk. Journal of international Money and
Finance, 43, pp.19-49.
Floyd, E., Li, N. and Skinner, D.J., 2015. Payout policy through the financial crisis: The
growth of repurchases and the resilience of dividends. Journal of Financial
Economics, 118(2), pp.299-316.
Goh, B.W., Li, D., Ng, J. and Yong, K.O., 2015. Market pricing of banks’ fair value assets
reported under SFAS 157 since the 2008 financial crisis. Journal of Accounting and Public
Policy, 34(2), pp.129-145.
Haas, R. and Lelyveld, I., 2014. Multinational banks and the global financial crisis:
Weathering the perfect storm?. Journal of Money, Credit and Banking, 46(s1), pp.333-364.
Helleiner, E., 2014. The status quo crisis: Global financial governance after the 2008
meltdown. Oxford University Press.

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Lahmiri, S., 2015. Long memory in international financial markets trends and short
movements during 2008 financial crisis based on variational mode decomposition and
detrended fluctuation analysis. Physica A: Statistical Mechanics and its Applications, 437,
pp.130-138.
Luchtenberg, K.F. and Vu, Q.V., 2015. The 2008 financial crisis: Stock market contagion and
its determinants. Research in International Business and Finance, 33, pp.178-203.
Nelson, S.C. and Katzenstein, P.J., 2014. Uncertainty, risk, and the financial crisis of
2008. International Organization, 68(2), pp.361-392.
Pianeselli, D. and Zaghini, A., 2014. The cost of firms’ debt financing and the global
financial crisis. Finance Research Letters, 11(2), pp.74-83.
Rajmil, L., de Sanmamed, M.J.F., Choonara, I., Faresjö, T., Hjern, A., Kozyrskyj, A.L.,
Lucas, P.J., Raat, H., Séguin, L., Spencer, N. and Taylor-Robinson, D., 2014. Impact of the
2008 economic and financial crisis on child health: a systematic review. International journal
of environmental research and public health, 11(6), pp.6528-6546.
Reddy, K.S., Nangia, V.K. and Agrawal, R., 2014. The 2007–2008 global financial crisis,
and cross-border mergers and acquisitions: A 26-nation exploratory study. Global Journal of
Emerging Market Economies, 6(3), pp.257-281.
Treeck, T., 2014. Did inequality cause the US financial crisis?. Journal of Economic
Surveys, 28(3), pp.421-448.
Vazquez, F. and Federico, P., 2015. Bank funding structures and risk: Evidence from the
global financial crisis. Journal of banking & finance, 61, pp.1-14.