Wednesday, October 9, 2019

'The global financial crisis (2007-2009) is an evidence of the Essay

'The global financial crisis (2007-2009) is an evidence of the weaknesses of the existing international and national regulator - Essay Example The excessive spending and the systemic risk associated due to the fluctuation of macroeconomic factors in the world economic environment exposed the investments and the subsequent lending by the financial institutions to high risks which was slowly growing into a large bubble1. Before the global financial crisis that started in US during 2007 and rippled throughout the world, the prices of the real estate was soaring very high. Thus, people could make huge profits in the short run by investing in US properties which was unmatched with any other investment in the US and the international markets. Apart from this, the national government in US also adopted the policy of property holding right for the US citizens that encouraged the financial institutions and their intermediaries to lend for the purpose of purchase of property2. However, due to the lack of tight regulatory framework, there were cases of lending and investments that could be identified as risky due to several factors li ke repayment capability of the investor, feasibility of the investment returns, regulatory compliance, etc3. The heavy bubble of bad lending by the financial institutions burst into a global financial crisis which was an evidence of the weakness of the national and international regulatory frameworks that were put in place for avoiding the systemic risk and the excessive risk taking of the financial institutions. Systemic risk The systematic risk is explained by the risk that arises due to the fluctuation of the macro economic factors like export-import, appreciation of depreciation of currencies, economic performance of developed countries, changes in international investments, fluctuations in the financial return and risk, etc. The global financial crisis brought out the systemic risk that started in the US and melted down globally to international economies across the world4. The inter-linkage between the houses of production, markets and the financial intermediaries led the plat form where the manufacturing and the production units suffered a slowdown in the production level due to the loss of the financial intermediaries which in turn was affected due to the default risk of the borrowers who invested in the US real estate and properties5. The lack of tighter regulatory framework fuelled the investments in the US real estates. The regulatory framework for the financial institutions is also liable of not putting checks when the financial institutions relaxed their approaches on due diligence and compliance checks to find the default risk in case of lending6. The business houses were also granted loans for increasing the supply to match the rising demand. The systemic risk exposed the weakness of the regulatory frameworks when the household and the businesses defaulted in paying back the borrowed money to the financial institution and there was financial catastrophe in the US economy7. Excessive risk taking by financial institutions The global financial crisi s in 2007 to 2009 could be attributed to excessive risk taken by the financial

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