Global Financial Crisis: Causes, Impacts and Reforms

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Running head: GLOBAL FINANCIAL CRISIS
GLOBAL FINANCIAL CRISIS
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1GLOBAL FINANCIAL CRISIS
Table of Contents
Introduction......................................................................................................................................2
Great Depression.............................................................................................................................2
Great Recession...............................................................................................................................3
The Credit Crisis 1772.....................................................................................................................5
The OPEC Oil Price Shock..............................................................................................................5
The Asian Crisis..............................................................................................................................6
Australia & GFC..............................................................................................................................7
Reforms............................................................................................................................................7
Conclusion.......................................................................................................................................9
References......................................................................................................................................10

2GLOBAL FINANCIAL CRISIS
Introduction
The collapse of the market of United stated of America was termed as sub-prime
mortgage crisis which is one of the example of one of the global financial crisis. The great
depression of 1929-1939 is also a reorientation of a form of financial crisis that wreaked havoc
throughout the world. Financial crises are found to be quite common in history as they have
taken place in the history of mankind due to their misappropriation in the economic activities in
simple terms. Financial crises brought forward socio-economic tsunamis that had affected
various countries significantly (Balakrishnan, Watts and Zuo. 2016).
Great Depression
By the year 1929, over nine thousand banks failed to operate successfully due to the
sudden stock market crash. It is considered that the stock market crash is the major reason for the
great depression though there are many other parametric factors that led to the phenomenon of
Great Depression. This are the Roaring 20s, dust bowl, Smoot – Hawley Tariff Act, etc. All this
things together caused serious weaknesses within the economy for which the “Black Tuesday” of
29th October, 1929 took place (Bénétrix, Lane and Shambaugh. 2015). Nearby 16 million shares
of stock were sold rapidly due to the panicking investor’s decisions to pull their money back
from the stock market due to their loss of faith over the performance of the American economy.
This also led to the global economic collapse for which by 1933 over half of the banks of
America became insolvent. Unemployment reached up to 15 million which was nearby 30 % of
the total workforce. The commencement of such underperformance was began when a bank from
Nashville, Tennessee instigated the occurrence of similar incidence throughout the Southeast. It
was been found that a large number of depositors lost their confidence upon the security of the
bank and for that reason they withdrew their funds from the banks at once (Bremus and

3GLOBAL FINANCIAL CRISIS
Fratzscher. 2015). Similar incidence in different bank also took place simultaneously. Banks in
general keep small amount of deposits in the form of cash with them in hand. However, there
was requirement for maintaining a level of cash in order to meet the withdrawal demand of the
depositors. As the share prices fall and the bank have to sell their assets at low prices, hence
these led the banks to become insolvent quickly. The bank panic started as within a point of time
multiple banks ran under the same situation eventually. In the time of the roaring 20s, it was
been found that the economy has boost with the objective of infrastructural development and
building towns from villages followed by urbanization (Brunn et al. 2016). The farmers were
found to possess less amount of hard money to spend in the towns as the banks began to fail as
an alarming rates. On an average nearby 70 banks were failing annually. In the Roaring 20s,
banks provided sufficient amount of credits which led to excess expansion in the economy due to
over-extension of the banks causing a natural disequilibrium within the money market leading to
a boom followed by a bust. People withdrew money from the bank due to their fear that banks
may go bankrupt in the near future. Nearby, $ 140 billion disappeared due to bank failures and
depositor’s trust upon the performance of the banks were affected significantly (Carson, Fargher
and Zhang. 2017). All of this destabilized the economy leading to the incident of Great
Depression.
Great Recession
The great recession is regarded as the sub-prime mortgage crisis that started from the end
of 2006 in the market of the United States of America and invigorated a full grown international
banking crisis leading to the collapse of the investments banks like Lehman brothers by
September 15, 2008. This crisis was followed by the global economic downturn that took place
due to the reason that the banks sold too many of their mortgages to inject demand in the market