Global Financial Crisis: Causes, Impact, and Reforms

This essay explores the different sides of the global financial crisis inclusive of the major events and the possible causes of the same. The impact of the GFC on the different nations is also viewed, following by the brief conclusion. The major reforms introduced by the government and the organisations are also discussed. The essay concludes with the probability of the GFC hitting again.

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Contents
Overview....................................................................................................................................2
History........................................................................................................................................2
Global financial crisis and its starters........................................................................................3
Impact of GFC on different nations...........................................................................................4
Reforms and suggestions............................................................................................................5
Composed structure to deal with the monetary and saving money exchanges......................5
Change the global fiscal and monetary framework to address irregular characteristics........5
Legislation and Enactments...................................................................................................5
Recapturing of the financial crisis..............................................................................................6
Conclusion..................................................................................................................................6
References..................................................................................................................................7

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Overview
The deep economic crises are due to the financial crumple in the USA which brought about
the profound instability in the operations of the economy. Further the lack of the rules and the
regulations are the ultimate reasons for the financial instability. Such emergency can result
into the social distress and political unrest. Throughout the years, the markets of the finance
turned out to be considerably complex as because of the introduction of the nee items and the
products. The blend of the complex monetary frameworks and various other factors are the
major causes of the financial crisis of the year 2008. The worldwide financial crisis is viewed
as one of the biggest and most serious falls in activities across the world. The following essay
is discussed to explore the different sides of the global financial crisis inclusive of the major
events and the possible causes of the same. The impact of the GFC on the different nations is
also viewed, following by the brief conclusion (Amadeo, 2018).
History
What could be the main reason was the issue and the answer to this question lies in the fact
that how steeply the prices of the housing were against the prices during the depression. The
prie of the houses fell by 31.8% and this itself marks the reason of the great cumbersome. It is
huge to take note of, that one of the central point that have made the nation’s emerge as the
weal points is money related globalization and mutual factors related to globalisation. These
joined with the household dangers and in association with the poor macroeconomic
approaches fuelled the monetary trouble in the economies. The list of the major events that
created this havoc is presented below (Filardo, Genberg and Hofmann, 2016).
The sub-prime mortgage crisis was one of the central occasions which were a piece of the
worldwide financial crisis. The loan costs on house instalments were low at first; the
possibility resulted into the event where the huge segment of individuals met all the criteria

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and requirements for home loans sponsored at the reasonable rates. This created a rise in the
housing price. Gradually step by step the interest rates were ascended by controllers and the
regulators to dodge inflation, the air pocket burst in 2005-2006. Therefore the lenders of the
money shut down or declared the financial insolvency or the employees of the money lenders
also laid off from such a situation (Australian Government 2009).
The upwards revisions in the estimated write-downs of the banks was the another possible
reason of this heated global financial crisis. The amount the revisions were a roundabout of
US$ 500 billion as presented in the months of March and year 2008 and ranged up to 3.5
trillion in October 2009. Notwithstanding the abovementioned, the world exchange volume
as controlled by the IMF was expressed to be declined by 12 per cent in the year 2009
(Prieto, Eickmeier and Marcellino, 2016).
Another occasion that was featured was mass accumulation of the foreign exchange reserved
and from the countries like China. This was done to keep the turnaround assuming any, in the
capital streams. The occasion not just brought about the unsettling influences it also resulted
in the imbalance of the alignment of the GFC (Turner, 2017).
Further as the markets pressed down and the instabilities and insecurities faced by the
financial institutions there was a drastic fall in the private parts of the economies and these
crisis further were mixed up by, or transmitted to the real economy (Miranda-Agrippino and
Rey, 2015).
Global financial crisis and its starters
Monetary Integration and the Global Imbalances: One of the significant occasions that
prompted the global financial crisis was that the universal capital inflows and the budgetary
globalization that literally and drastically expanded before the emergency. While the occasion
resulted into the positive ramifications on the basis of investments in capital, flow of money

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across the borders or cross borders and the diversified portfolio and the various market risks
created more vulnerabilities towards these events and therefore there was a dramatic shift in
the sentiments of the investors and the shareholders and among the rest of the parts (Reinhart,
and Rogoff, 2015). Expanded capital streams eventually resulted in the decrease of the long–
term loan fees. This further builds the level of risk for the financial institutions related and
expanding the supply of credit items in the countries (Australian Government 2009).
Fiscal Policy: There have been various proofs that global financial crises emerged due to the
deficient fiscal. The wasteful fiscal strategies where the rate of the interest was terribly low,
and was kept under the US Federal Reserve for a really long time, resulted in the risks taken
by the banks at the higher level and the risk are bifurcated as the liquidity as well as the credit
risks created an increase in the demand and supply for the mortgages. Ultimately the prices of
the houses shoot up on which most of the mortgages were dependent (Gendron and Smith-
Lacroix, 2015).
Factors related to the supervision and regulation: It is noteworthy to understand that controls
and measures of supervision are considered as the centralised means direct the risk taking
limits of the financial organizations and accordingly are the best in taking care of the global
financial crisis. As pointed out by Fiorillo the inflows of the capital nature transactions are
the prime factors of the macro economy. It was expressed that the insufficiently structured
monetary frameworks were not supervised correctly, which further made the oath for the
financial instabilities to enter the core economy of the country. The US development during
the 2000s at the same time saw the prominence of the subprime credits, which denoted the
low-salary US families as the beneficiaries of these loans and advances (Fiorillo, 2018).

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Impact of GFC on different nations
Most of the financial markets is affected by the global financial crises occurred in the United
States. The tension at the financial front led to the further distress in the economy of the
country. It is fundamental to take note of that since the quarter of the September 2008; the
economies faced a specialized retreat. Interbank markets of the similar economies were
seriously influenced by the liquidity emergency. This was on the grounds that the banks had
turned out to be hesitant to provide loans to one another in case of the counterparty dangers.
There was a huge fall of the banks and amongst the major banks that came in the influence of
such fall were, for example, Lehman Brothers and the economy of the Europe also faced an
upsurge. Thereafter there was a series of events that led to the fell in prices of the assets and
the entire sector of the real and estate was also crumbled and hit the markets of the US and
Europe (Aalbers, 2016).
The progressive nations like India were also substantially hit by the storm of the GFC in such
a manner that all the capital flows were in the reversal and India saw a fall in the domestic
stock market and the steepness in the stocks of the foreign investors and the institutions.
What's more to this was the lack of the liquidity in terms of the dollar figure and the pressure
on the Indian rupee at the downward level resulted in the negative growth rate of the country
in the year 2008 (Lynch, 2018).
Even the Australian economy could not save itself from this global turmoil. The impacts in
the Australian economy were set apart by permitting of the development, tumbling off the
employment opportunities and the incomes of the corporates were significantly hit. In any
case, it is important to make a note of the fact that Australia was on of the four economies
that was affected by the GFC but hadn’t fallen down to its lowest of the levels (Borio,
Disyatat and Juselius, 2016).

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Reforms and suggestions
Since both the macro as well as the micro economic factors resulted in this global collapse
the number of reform were created for the individual areas such as the political, social,
technological an legal and these reforms were undertaken by the countries to deal with the
collapse in their own manner. The major ideology behind such initiatives was to give the
power and strength to the finical system and reduce the exposure of the instability among the
finical entities. The major reforms introduced by the government and the organisations are as
follows (McMillan, 2018).
Composed structure to deal with the monetary and saving money exchanges
There have been various measures that were embraced by the administration offices to
address the disappointments caused by the GFC. The progressive G20 summits stamps the
endeavour of the measures. To better control the situation the major contribution was by the
countries Japan, Europe, and the United States, which set up the hedge funds and the new
policies and strategies that ultimately marked the attention of the GFC. The major relaxation
was seen when the coordination among the nations were apparent through the formation of
the Financial Stability Board (FSB) which unites the institutions of the financial nature
among 23 nations, ministers of the finance department and delegates (Balakrishnan Watts,
and Zuo, 2016).
Change the global fiscal and monetary framework to address irregular characteristics
The banks and organisations took necessary and the mandatory measures to direct and
resolve the unevenness among the financial firms and the companies and the emerging
countered associated with the GFC. Amongst the western and the upcoming countries it was
advised to ring a balance between their currencies and create more flexibility between the
investors but to an extent only. Apart from this the Basel Committee Banking Supervision
changes were also introduced by the government to improve the distress caused by the GFC.

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Also the international banks were not allowed to enter their foot unless and until they have
their own capital base in the adequate manner.
Legislation and Enactments
To cater the systematic risks occurring in the financial system various rules and legislations
were passed by the government and one such legislation was the Dodd-Frank Wall street
reform. The name itself suggests that there was no entry of the banking institutions in the
proprietary trading and they were not allowed to trade the securities for their personal
purposes. Further the reforms also results in the prevention of the policy of retaining the
amount of interest against the hedge funds and the private equity funds. Hence these focus on
more towards the security of the banks and low intervention in the lending practices and
giving full back up to the customers.
Recapturing of the financial crisis
Christine Lagarde, who is the managing director of the IMF once, said that the financial
organisations are still not strong enough to cope up with another global financial crisis.
Further it was also founded that the major challenges that were faced by the banks and the
other developing nations are now heavily secured by the innovations in the field of the
finance and technology. However the government also introduced necessary reforms and the
measures to give the backup the possible shocks. In association with this method the banks
are required to keep cash in the form of CRR and SLR and are also subsequently banned
from dealing in the unfair practices. Thus from the above analysis it can be concluded on the
theoretical grounds that the GFC might hit again but on the practical front the chances of the
GFC are low (International Monetary Fund 2010).

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Conclusion
The talks in the past parts concludes that the global financial crisis turnout to be the biggest
turmoil in the history of the United States, and moreover the events caused the major distress
to the economy of the country at the higher level. Almost every nation faced the storm due to
the interconnection of the banking and the tie ups with each other and the results were so
drastic in nature that the economies got plunged, the GDP of the country fell sharply and in
addition to this the bankruptcies played a vital role in making the Global Financial Crisis a
historic event to remember forever. The good thing that happened was the introduction of the
reforms and the increased awareness among the government, banks and the other financial
institutions. Also the last segment of the report makes the understanding deeper with regards
to the upcoming GFC and its probable chances to it back. With all this analysis it can be
concluded that though there are sheer benefits in capital abundance and the association with
consumers across the borders yet there is high level of risk attached to it.

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References
Aalbers, M.B., 2016. The financialization of home and the mortgage market crisis. In The
Financialization of Housing(pp. 40-63). Routledge.
Amadeo, K. (2018) The Causes and Costs of the Worst Crisis Since the Great Depression
[online] Available from: https://www.thebalance.com/2008-financial-crisis-3305679
[Accessed on: 18/01/2019].
Australian Government (2009) The Global Financial Crisis and the road to recovery [online]
Available from: https://treasury.gov.au/speech/the-global-financial-crisis-and-the-road-to-
recovery/ [Accessed on: 18/01/2019].
Balakrishnan, K., Watts, R. and Zuo, L., 2016. The effect of accounting conservatism on
corporate investment during the global financial crisis. Journal of Business Finance &
Accounting, 43(5-6), pp.513-542.
Borio, C., Disyatat, P. and Juselius, M., 2016. Rethinking potential output: Embedding
information about the financial cycle. Oxford Economic Papers, 69(3), pp.655-677.
Filardo, A., Genberg, H. and Hofmann, B., 2016. Monetary analysis and the global financial
cycle: an Asian central bank perspective. Journal of Asian Economics, 46, pp.1-16.
Fiorillo, S. (2018) What Was the Subprime Mortgage Crisis and How Did it Happen?
[online] Available from: https://www.thestreet.com/personal-finance/mortgages/subprime-
mortgage-crisis-14704400 [Accessed on: 18/01/2019].
Gendron, Y. and Smith-Lacroix, J.H., 2015. The global financial crisis: Essay on the
possibility of substantive change in the discipline of finance. Critical Perspectives on
Accounting, 30, pp.83-101.

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International Monetary Fund (2010) What Caused the Global Financial Crisis : Evidenceon
the Drivers of Financial Imbalances 1999: 2007. [online] Available from:
https://www.imf.org/en/Publications/WP/Issues/2016/12/31/What-Caused-the-Global-
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