Analysis of Causes and Consequences of the Great Recession
Assessment Unit 1:
“ANALYZE THE CAUSES AND CONSEQUENCES OF THE GREAT RECESSION OF 2007-2009.”
Prepared By:
Okunlaya Babatunde Badrudeen (0804954)
Course Title/Code: Global Economy
(EC1013A)
Tutor: Rolve Melfe
INTRODUCTION
The financial crisis of 2007–2009 began in July 2007 when a loss of confidence by investors in the value of securitized mortgages in the United States resulted in a liquidity crisis that prompted a substantial injection of capital into financial markets by the United States Federal Reserve, Bank of England and the European Central Bank (see desktop Financial recession 2007 -..) Although America 's housing collapse (which peaked in approximately 2005 – 2006) is often cited as having caused the crisis, the financial system was vulnerable because of intricate and highly-leveraged financial contracts and operations, a U.S. monetary policy making the cost of credit negligible therefore encouraging such high levels of leverage, and generally a "hypertrophy of the financial sector" (financialization) ( see desktop doc in above citation).
What started as an American ‘prime-mortgage’ lending crisis spread to Europe and the emerging markets of Asia, South East Asia and Latin America, affecting a wide range of financial and economic activities and institutions, which includes, the tightening of credit with financial institutions making both corporate and consumer credit harder to get, devaluation of the assets underpinning insurance contracts and pension funds leading to concerns about the ability of the instruments to meet future obligation, devaluation of some currencies /increased currency volatility and liquidity problems in equity funds and hedge funds.(Francis Ikome 2008 - The Social and Economic Consequences of the Global financial crisis on the developing countries and emerging economies: a focus on Africa. – Berlin recession 11 pdf). It was considered to be the worst financial crisis since the Great Depression of the
“ANALYZE THE CAUSES AND CONSEQUENCES OF THE GREAT RECESSION OF 2007-2009.”
Prepared By:
Okunlaya Babatunde Badrudeen (0804954)
Course Title/Code: Global Economy
(EC1013A)
Tutor: Rolve Melfe
INTRODUCTION
The financial crisis of 2007–2009 began in July 2007 when a loss of confidence by investors in the value of securitized mortgages in the United States resulted in a liquidity crisis that prompted a substantial injection of capital into financial markets by the United States Federal Reserve, Bank of England and the European Central Bank (see desktop Financial recession 2007 -..) Although America 's housing collapse (which peaked in approximately 2005 – 2006) is often cited as having caused the crisis, the financial system was vulnerable because of intricate and highly-leveraged financial contracts and operations, a U.S. monetary policy making the cost of credit negligible therefore encouraging such high levels of leverage, and generally a "hypertrophy of the financial sector" (financialization) ( see desktop doc in above citation).
What started as an American ‘prime-mortgage’ lending crisis spread to Europe and the emerging markets of Asia, South East Asia and Latin America, affecting a wide range of financial and economic activities and institutions, which includes, the tightening of credit with financial institutions making both corporate and consumer credit harder to get, devaluation of the assets underpinning insurance contracts and pension funds leading to concerns about the ability of the instruments to meet future obligation, devaluation of some currencies /increased currency volatility and liquidity problems in equity funds and hedge funds.(Francis Ikome 2008 - The Social and Economic Consequences of the Global financial crisis on the developing countries and emerging economies: a focus on Africa. – Berlin recession 11 pdf). It was considered to be the worst financial crisis since the Great Depression of the
References: Amadeo, K. (2010), History of Recession in United States [Online] Available at About.com Guide, [Accessed on 29 December 2010]. Clark, A. and Hopkins, K. (2009), “US economy shrinking at fastest pace since 1981”, The Guardian, pp. 39. Traynor, I. (2009), “Governments across Europe tremble as angry people take to the streets”, The Guardian, 31 January. Carrigan, M. and Pelsmacker, P. (2009), Will ethical consumers sustain their values in the global credit crunch? International Marketing Review, Vol. 26 No. 6, pg. 674 – 687. Herring, J. (1999), ‘Credit risk and financial Instability’, Oxford Review of Economic Policy, Vol. 15 No. 3, pp. 63 – 69. Shafer, J. R. (1986), Managing Crisis in the Emerging Financial Landscape, OECD Economic Studies, pp. 56 – 77. APPENDICES Appendix 1: A graph showing the median and average sales prices of new homes sold in the United States between 1963 and 2008 (not adjusted for inflation [pic]Source: www.wikipedia.com [pic][pic][pic]