ECONOMICS

The Current Financial Crisis: Causes and Policy Issues, Financial Market Trends



The Current Financial Crisis: Causes and Policy Issues, Financial Market Trends

Critical review of the article

The authors (Wignall & Atkinston, 2009) during the recently concluded conference of “financial turmoil” in Australia, has elaborated major factors that are primarily responsible for the prevailing financial crises. According to the authors, global macro policies with improper regulating framework, and inability of the countries to manage has instead of controlling the prevailing crises, has played a vital role in unexpected raise of this crises. According to several economists, compared the severe impact of these policies on the liquidity position of several countries with the situation in which a dam is overfilled with the floodwater, with the probability of causing massive destruction in the country (Norgren, 2010). Several factors like fluctuation in exchange rate of china's, I percent interest rate in USA, and 0 percent interest rate in Japan was unexpected, and other forced the pool of global liquidity to overflow, which ultimately resulted in immediate bubbling of assets, and leverage.

However, according to (Wignall & Atkinston, 2009) this global financial crises was mainly started in year 2004 that initially exerted pressure in certain specific areas. Nevertheless, after certain period, the dam or the financial regulatory system finally broke causing severe damage to the global economic condition, and economist has speculated that condition will become worse with the passage of time. While, in this period when economists converse regarding unexpected incident, they more often than not contain certain ideas in mind that is based on their either observation or experience.

In this circumstances this financial crises was viewed as the enormous since the great depression, however, this financial disaster was not autonomous, rather they were created by poor policy making of the past, misrepresentation of the event from the government. Immediate action was taken by several countries by drafting reform policy with the primary intention of controlling the damage, improvement in the credit ratings, analyzing the standards of financing, investigating the lapse made by government, and other, however, these reform policies were limited to paper, and nothing substantial was obtained with the implementation of these policies. On the other hand, the proposed recommendation were only implemented in the banking structure to formulate a new banking model, with the primary objective of taking advantage of available benefits that were forcefully raised. For example, unexpected growth in RMBS clearly explains that this success was not a casual event, rather was initiated by certain forced changes in the financial system. Authors further explained that four primary factors were responsible for unexpected growth in the banking sectors.

Firstly, “American dream” launched by then Bush administrator with the intention of supporting low income and poor families in enhancing their living standards (Jickling, 2010). Secondly, office of Federal Housing Enterprise Oversight (OFHEO) made it a compulsory requirement to provide appropriate balance for the securing of mortgage loan and this provided banks with the opportunity of targeting more customers to increase the smaller loan ...