Trillions of dollars in asset value disappeared after the peak of the 2006 Asset

Question

Trillions of dollars in asset value disappeared after the peak of the 2006 Asset Bubble. What factors do you think were most important in the 2008 Financial Meltdown? How did they impact the confidence in the financial markets? What policies do you think are'most important in preventing a future financial crisis? Explain. Financial Innovation and Liberalization contributed to the Global Financial Crisis. Explain how specific examples of "Financial Innovation" negatively impacted financial markets during this period. Explain how specific examples of "Financial Liberalization" negatively impacted financial markets during this period. How did consumer lending and bank supervisory regulation contribute to the Financial Crisis? Could it Happen Again? Explain.

Explanation / Answer

A
1.
There are many important factors that played an important role in the financial meltdown of 2008. First important factor was subprime lending. It means lending to those who have poor credit or higher probability of default. Second factor was the use of derivative as a speculative tool to earn quick and maximum benefit. Lack of proper pricing of credit default swap also played an important role. Lack of proper regulation of derivatives market contributed also to the subprime lending crisis. Finally, it resulted in financial meltdown of 2008.
2.
It negatively affected the confidence of investors. Investors saw the wipe out of the values of assets in quick time. It caused a negative effect on their mindset and they stayed away from the capital market. In overseas nations also, the effect of financial crises of 2008 was strongly felt. FIIs withdrew their funds and the stock market plummeted.
3.
There is a need of stringent financial regulations not only for debt and stock market, but also for all types of securities market. These regulations should also fix responsibilities and accountabilities of credit rating agencies. Financial institutions should also focus upon risk management and corporate governance to prevent the cases of bad assets.

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