2008 Economic Crises : Report
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Added on 2020-01-07
2008 Economic Crises : Report
Added on 2020-01-07
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Portfolio the main causes of theeconomic crisis
Table of ContentsINTRODUCTION...........................................................................................................................3Q.1 Identify and analyse the main causes of the economic crisis 2007-2008.............................3Q.2 Critically evaluate the effectiveness of tools used for forecasting events and predictingcrises in........................................................................................................................................5the business environment...........................................................................................................5Q.3 Discuss in terms of strategic crisis management theory, what organisations need to doprior,............................................................................................................................................7during, and after such an event to survive and perhaps thrive....................................................7CONCLUSION................................................................................................................................9REFERENCES..............................................................................................................................11
INTRODUCTIONGlobal financial crises having a great impact on the developed and developing countriesand its economic growth. It can create a serious situation such as uncertainty in inflation, interestrate, increase in unemployment, decrease in the demand and slowdown the GDP of the nations.All these elements have an adverse impact on the business and its future growth rate (Fratzscher,2012). A financial crises is often associated with a panic on the financial institutions such asbanks where investor sell off their assets or withdrew their money form bank accounts with theexpectation that the value of assets will drop. In the historical aspects of economic crises wasworst in 1929 which was the economic disaster for the world. The present report is related withthe 2008 economic crises. In 2007-08 the global economy faced one of the most dangerous crisesafter Great Depression 1929. the purpose of this report is to understand the causes of lasteconomic depression and determine the forecasting tools and techniques which can predictingsuch crises in a business environment (Claessens and et. al., 2010). Q.1 Identify and analyse the main causes of the economic crisis 2007-2008In 2007-08, the world experienced a major financial crises which one of the most seriousrecession after Great Depression 1929. Both the financial crises and slowdown the United Stateseconomy affects all other countries which can transform a global crises. In mid 2008. LehmanBrothers which is one of the leading investment bank failed and companies laid off large numberof staff due to recession. This is actually perfect storm which has been brewing for now andfinally reached its breakdown point (Carballo-Cruz, 2011). This is one of the major cause which comprises vie various elements. The new creditlines can increase the flow of money and slowed financial growth. It has been hurtvarious investors, multinational companies and banks. The another factor was lower ratecredit which promote individuals ton buy houses. Such system create too much money inthe market where people to spend that money (Milesi-Ferretti and Tille, 2011).Unluckily, they wanted to buy the same thing which can leads to increase demand andincrease inflation. Large number of investors give billions of dollars of debt to purchaseorganizations which can not transform in term of value what they expected. Apart fromthat, at the same time the prices of oil gone higher which can leads to increaseunemployment rate.
Credit is a tool which are used by all economies in order to maintain its growth andemployment in the market. It is used to increase the demand for various products such ascar, houses and other investment products in order to create good return from its in thenear future (Cour-Thimann and Winkler, 2012). But in last decade credit got out ofcontrol in the US economy. Mortgage companies identified who got loans, then transferresponsibilities for those loans to another organizations through mortgage backedsecurities. Brokers who responsible for approved such loans by packaging these badmortgages with other mortgages resale them in terms of investment. Large number ofpeople took loans in the hope that they could earn profit out of them and purchase housesas a investment which was not good for them (Masini and Menichetti, 2012). Due to lower interest rate can leads to increase the credit which can leads to increase thedemand of houses. The housing slump having a great on impact in economy. Changing inmortgage rates are effect persons and investors through which mortgages are no longer beaffordable by them. Further, as a result it can reduce rate of mortgage backed securitiesand various banks and financial investors are loosing money. Prices of houses are tendsto decrease and growth rate of new building has been reduce through this effectivefactor. Decreasing housing prices able to create various complications like; value of newhomes are less then the mortgage. Affordable rates are accepted by them but unaffordablegoing to reduce their profit efficiency (Bekaert and et. al., 2014). Some massive damages are affected to banks and financial institution as they aremerged with other institution in order to come out from great looses and easily boughtout. Some banks are still working through receive benefits from government which areframed in their interest and they are lucky enough. Greater number of institutions areunlucky as they are crashed. Mergers of different banks is the best possible solutionwhich remove conflicts and simply bought out (Giannetti and Laeven, 2012). Lots of banks and financial institutions are facing loses from risky mortgagebacked security which no longer be affordable by them. If present loans of banks are notpresent positive view of cash flow then they cannot loan more money to persons andother institutions. The biggest solution for solve this problem banks needs to lend moremoney to financial institutions and other organizations. It is basic advantage for them torecover their position and enhance their profits as well. Opportunities are provide them in
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