Explain how the global financial crisis in late 2007 took place? Hint: explain t

Question

Explain how the global financial crisis in late 2007 took place? Hint: explain the origin of the crisis and policies that could be implemented during these periods to overcome the crisis. of the isis and policies that could be implemented overcome the crisis . Provide an example Explain how the global financial crisis in late 2007 took place? Hint: explain the origin of the crisis and policies that could be implemented during these periods to overcome the crisis. of the isis and policies that could be implemented overcome the crisis . Provide an example Hint: explain the origin of the crisis and policies that could be implemented during these periods to overcome the crisis. of the isis and policies that could be implemented overcome the crisis . Provide an example

Explanation / Answer

The real reason for financial crisis was the US sub prime mortgages and recession that took over in 2007.Many major financial instution collapsed in 2007 leading to global recession.The main drawback was considered to be the goverment policies before the financial crisis.Housing policies and over valuation of houses were the main reason for the financial crisis. The goverment role before the financial crisis was to provide houses to everyone but this triggered a large decline in house prices which lead to mortgage foreclosure and devaluation of housing securities due to over valuation it created a havoc as sub prime crisis in US.

The main role of goverment during and after the financial crisis was to cover the major loss and diagnose the problem as soon as possible.Therefore, Goverment came out with enterprises such as Freddie mac and Fannie mae which encouraged to expand and buy mortgage backed securities which included securities formed with the risky sub-prime mortgages.The fed created the Term Auction Facility (TAF) inorder to reduce interest rate spread and increase the flow of credit.There was another policy passed by goverment known as Economic stimulas act which gave $100 billion to public so they can spend and jump start the economy again but the people spend very less leading to failure of this policy.The last policy goverment initiated was the reduction in federal funds rate from 5.25% to 2% but even this back fired as the prices of the oil increased and the dollar value was depreciated.In simple words , the oil prices doubled and the dollar valuation also came down which impacted the economy directly.

After many policies falling , goverment adopted the financial crisis and monetory policies to lessen the shock of the crisis and also in 2010 Dodd - Frank regulatory reforms were enacted so the crisis doesnot repeat again.

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