Impact of Global Financial Crisis

Topic: Economics
Words: 563 Pages: 2

The financial market shows a reckoning hedge in terms of bank analysis and funding matrix. The crisis has engulfed the global financial systems because the great recession is at the epitome of affecting people, jobs, and savings. The lending standards in 2007 began with cheap credit incorporated with lax lending. Financial institutions were left with trillions of dollars, yet their mortgages have sublimed. The recession of 2007 made homeowners in the US owe more mortgages than their homes were worth. According to Rodney Sullivan, the turnaround started in 2009 when the economy was restarted. The roc bottoms interest and losing lending standards are the major cause of housing prices on the verge (Bogle & Sullivan, 2009). The corporate accounting scandal was further affected by the September 11 terrorist attack because the Federal Reserve had to lower their fund rates from 6.5% to 1% in 2003. The Federal Reserve thought their move could boost the economy, but the results were upwards spiral.

The subprime borrowers with poor or no credit history took advantage of the situation and made their way into the investment of homes and properties. The massive move of the lending program did not favor people with good financial history. When people borrow and fail to return means that they need to reincarnate the circumstance. As a result, the banks sold the loans to Wall Street Banks hence packaging the risk as a low-risk financial matrix such as collateralized debt obligations (CDOs) and mortgage-backed security. As 2007 approached, many sublime lenders had filed for bankruptcy (Bogle & Sullivan, 2009). The sublime crisis caused reverberating globe freeze, which meant that the federal bank had to take action. The global credit markets halted the assets, and trillions of dollars seemed toxic because their rates were affected. In 2008, when the bear sterns’ demise, the economy went into a full-blown recession. This is the time when companies started shutting down. Some of the international companies, such as Suzuki Automobile, closed its operation within the US.

John Bogle (2009) posits that the financial crisis-induced families into insufficient borrowing standards. To reduce the pressure, it was ideal for the collateralized mortgage obligations (CMOs) to slice their tranches output, such as collateralized debt obligations (CDOs). Credit default swaps (CDSs) should retaliate and ensure they do not collide with insurance companies. Congress should have ensured the banking sector is their priority in sponsoring them and restoring clarity to their financial systems (Bogle & Sullivan, 2009). Equally, regulators within the finance systems should have recognized default swaps to insure the insurance companies are against the correlated risks. The financial model insinuates that riskless arbitrage identifies with future payoffs. The valuation in quantitative finance synchronized with savvy participants makes the economic outlook exceptionally indeterminable.

Bogle (2009) posits that the remedy is to fix Wall Street and ensure people focus on long-term investments. The recession caught people with assets that could not generate income, such as cars and washing machines. The distribution array of the economic variables is affiliated with societal concerns and global tolerance. It is fundamental to understand prudent asset allocation, taxations, and market freedom before making major financial moves (Bogle & Sullivan, 2009). Bank reliefs can liquefy the financial strength of a country when the proceedings are not done with precision. Countries should ensure their liquid cash balances with their federal back logarithms to ensure recessions do not occur.


Bogle, J., & Sullivan, R. (2009). Markets in Crisis. Financial Analysts Journal, 65(1), 17-24.

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