Critically evaluate the reasons for the recent global financial Essay

Critically evaluate the reasons for the recent global financial crisis, in the light of the articles in reference and other rele - Essay Example There are presently many analyses of the crisis, perhaps the best one appearing as a recent report from the United States Congress. It agrees with most analyses that, at least mark the origins of the crisis as occurring in the United States. and most of these analyses seem to reflect the two points of views that divide the US political system. In general one view would say that the crisis was precipitated by the greed of Wall Street speculators and subprime lenders. The other side would point to the victims of the crisis in the US, the ones who didn't have credit but agreed to take upon mortgages for housing they couldn't afford. The main effort of this report will be to describe how the crisis happened and rapidly spread to the UK, England, and other parts of the world. It will try to understand the corrective policies and measures that have been made. Finally it will address the question of who has responsibility for the crises occurring. Discussion The Setting On the eve of the of the 2007-2008 global economic crisis it is significant that all but a handful of the world's learned economists, despite the gradually accumulating data, could not see the disaster coming (Verick and Islam, 2010). Most of advisors were still under the influence of the 2001-2007 boom. Apparently this boom stood upon a shaky economic foundation that forced even the World Bank and the International Monetary Fund to revise their forecasts. To understand the economics feeding this "straw boom", one must review world macroeconomics leading to it. There were two oil crises during the 1970s (Verick and Islam, 2010). The latest one occurred in 1979. This one produced a economic slowdown through the 1980s that especially characterized the developing countries. These countries had their economies more or less influenced by structural adjustment programs (SAPs) controlled by Western developed countries (Verick and Islam). SAPs were rendered by reduced macroeconomic volatility under the wisdom of government directed monetary policy in most of the developed countries. The 1990s can be experienced as low growth among these countries, with the Asian 1998 financial crisis all the more keeping that growth in low wings. The technology dot-com collapse occurred in 2001 and after it settled, the developed countries begin to collect themselves in a period of so-called sustained boom. Economist Robert Shiller is noted for reporting that the US housing boom started in the late 1990s (Verick and Islam, p. 15). This is notable as many commentators have placed blame for the current crises on the US monetary policy which lowered policy interest rates to 1 percent in 2003. The claim is that this effort in effect freed liquidity in US markets, heightening borrowing while creating debt-financed consumption (of housing). The point is that housing prices was on the rise in the US market before 2003. But even by that time, it only became more substantial as an open field for (housing) specula tors. The period from 2002 through 2007 became filled with "robust optimism". Bernard Beneche, a widely respected economist later to be Chair of the US Federal Reserved, termed the period as one of "Great Moderation". Global economic balances were fed by surplus capital from China and other Asian and Middle East countries, primarily into the US housing market, that is, the mortgage debt market. At this time,