Globalisation of trade and investment has increased the likeliness of a financial crisis in one country spreading to many different countries around the world. This is because countries around the world have become more integrated and interdependent in the modern global economy. Greece is one of many countries that were hit hard by the financial crisis of 2008, which has negatively affected the Greek economy and many of the population of Greece. This essay will define and explore the economic, political and socioeconomic consequences that Greece faced from the subsequent recession, and access the effectiveness of the response and intervention from the Greek government. Before the financial crisis of 2008, Greece was already living beyond its means, public wages had increased by fifty per cent between 1999 and 2007, faster than most countries in the Eurozone (BBC, 2012).
Introduction On September 15, 2008, Chapter 11 bankruptcy protection was filed by the Lehman Brothers Holdings, Inc. This bankruptcy case was not only the largest in the history of the United States, but it occurred after continual reassurances from the firm’s chief executive officers that assets were strong, liquidities were soaring, and leverage was controllable (Leynse, 2009). The collapse of this company devastated consumer confidence at a time of instability, and during its implosion, many debatable outcomes came forth. The disintegration of the housing market bubble and the subsequent financial crisis were followed by the severest economic downturn since the Great Depression. In 2007, the defaults of subprime mortgage industry reached its peak.
The financial institutions’ capital erodes and, at the same time, lending standards and margins tighten. Both effects cause fire-sales, pushing down prices and tightening funding even further (Brunnermeier and Pedersen, 2005). Notwithstanding the fact that Northern Rock was initially set up as a regionally based institution, the Bank had experienced a rapid growth during the decade before its crisis mid 2007. Northern Rock’s total assets had grown from 17.4 billion pounds to 113.5 billion pounds by June 2007, making it the 5th largest bank in the UK by mortgage assets. The funding of these assets caused a dramatic change in the composition of Northern Rock’s liabilities.
Crisis Definition and Executive Summary Inflation was so chronic that in the late 1960s, the government instigated monetary correction, whereby fixed payments were indexed to past inflation. Thus, interest rates, pension payments, mortgage payments, and so forth, kept pace with rising prices, but inflation fed on itself. Even as economic growth surged in the mid-1980s, triple-digit inflation persisted. In February 1986, as the projected inflation rate for the year approached 500%, the government imposed a package of sweeping economic reforms, The drain on reserves, in which $30 billion winged their way out of the country. The government then imposed an austerity program and began negotiations with the IMF for a rescheduling of the staggering foreign debt.
According to Paul Alexander Gusmorino, the main cause of the drastic downfall was the combination of unequal distribution of wealth and the extensive stock market speculation that took place in the later years of that decade. Speculation is a key term in this area of history. To put it simply, speculation is an involvement in risky business transactions in an attempt to quickly gain large amounts of wealth. The imbalance of wealth led to an unstable economy, while the stock excessive speculation kept the stock marker falsely high, eventually leading to a large crash. Authoritative figures tried to help out the economy in any way they could, but not all ended up helping.
In recent memory, there have been a number of significant recessions, and a few major upsets in our markets. One of the most intriguing events of our time is the stock market crash of October 19th, 1987, more easily recognized by the moniker of “Black Monday”. In that one day, the Dow-Jones Industrial Average lost over 508 points, equating to a 22.6% loss, or approximately $500 billion (Beattie 2012). This makes it, to date, the largest one-day percentage decline in Dow-Jones history. Here we shall discuss how it came to pass, through the topic of the economic climate and emerging trading practices of the 1980’s preceding the crash, heavily focusing on program trading, as well as a bit of the market psychology, and the remedial actions and consequences involved with Black Monday.
Considered that the financial crisis has started from the USA, its effects were quickly and strongly felt beyond the country, too. The crisis is still a challenge for the Euro zone’s unity and its economic and financial stability. Since 2008 the unemployment there has been rising, many of the countries have a huge public and private debt. The economy in the Euro zone has been developing so bad that experts and economists doubt if the euro currency can survive. One of the Euro zone members which used to have one the most powerful economies on the continent is Italy.
More things can affect how the ECB reacts when I comes to inflation and mostly targets a broader price index that includes things that doesn’t bother the FEDs as much, such as the Libya-related oil spike in 2011. (Bagus 2011) When the 2008 financial crisis was at its worst, the FED began an emergency lending program to ensure money continue to flow through the economy. $3.3 trillion was loaned to U.S. banks, European Banks, General Electric, McDonald’s and anyone and everyone who needed help. They also boosted the economy by buying more than $2 trillion of mortgage-backed securities and other bonds. (Hanna 2011) The FED generally acts as a lender at the last resort to help give the economy a need boost.
‘The root cause of the financial crisis was shadow banking - investment banks, hedge funds and commercial bank trading desks. Future crises will be averted only if those institutions are more closely regulated.’ Critically discuss the role of the shadow banking sector in the credit crisis and analyse recent proposals for reform. Since the mid-1970s there has been a rapid growth of market in the financial system, with this financial system the “shadow bank” institutions played a particularly important role giving the world a sense of economic wealth with minimal risk factors. Shadow banks are infrastructures and practices which support financial transactions that occur beyond the reach of existing state sanctioned monitoring and regulation. It includes entities such as hedge funds, money market funds and structured investment vehicles.
Before we can explore causes, we first need to define what we mean by The Great Depression The Great Depression was a global economic crisis that may have been triggered by political decisions (war reparations post-World War I), protectionism (Congressional tariffs on European goods) or by speculation .Worldwide, there was increased unemployment, decreased government revenue, a drop in international trade. Its kickoff in the U.S. economy was “Black Thursday," October 24, 1929. That's when 12.9 million shares of stock were sold in one day. It was triple the usual amount. At the height of the Great Depression in 1933, more than a quarter of the US labor force was unemployed.