Navigating the 2007-2008 Global Financial Crisis: Causes, Consequences, and International Business Impact

Abstract

Instructor’s Name The [Author] occurred between 2007 and 2008, causing extreme stress in the global financial markets. Many countries experience a global financial crisis at the same time where simultaneous effects include a deterioration in financial institutions, markets, and consumers. The crisis started in the United States and later spread to all other parts of the world. It undermined some of the United States’ financial system and elsewhere, affecting part of its financial system (Kotz, 2009). Many banks incurred several losses seeking refuge from the government to avoid bankruptcy. Unemployment rose to greater heights, and many advanced economies, such as the United States, went into deep recessions never experienced since the Great Depression in the 1930s. It caused a collapse in international trade and the economy's downturn around the globe. Recovery from the severe recession was slow compared to any other crisis. According to (Helleiner, 2011), various economists have associated the genesis of the 2007-2008 economic crisis with the macro environment of cheap credit before the crisis and the market and regulatory failures. However, the epicenter of the global financial crisis was the housing market, borrowing more than they could afford. Nobody foresaw the crisis. the crisis damaged part of the financial system. No one saw the crisis coming. It began with the housing bubble and mortgage defaults which affected the financial institutions. The crisis stirred a debate with blame claims from various economists that the regulators failed to enact the necessary measures to curb the crisis by predicting the crisis and giving warning signs. This discussion will focus on the causes, consequences, and international business after the global economic crisis. The primary cause of the crisis was the deregulation of the financial industry. A change in the bank investing regulation encouraged banks to invest customers’ money in derivatives. To enhance profitable derivatives sales, the banks demanded more mortgages, prompting the crisis. Due to the falling house prices, the value of the derivatives crumbled, causing the global economic crisis, and banks could no longer lend each other money. International capital flows heightened the crisis. the growing economies have always been victims of crisis due to the inflow of foreign capital prompting cheap credit conditions causing a financial meltdown in the country. This situation similarly affected the United States, Asia, Europe, and the Middle East. The huge capital inflows caused cheap credit, causing the long-term interest rates and mortgage rates to be low even after the intervention of the federal reserves. Another eminent cause of the global crisis is securitization. An example of securities involved includes; privately issued complex mortgage-backed securities (MBSs). Securitization fueled excessive risk-taking in the financial sector. According to (Helleiner, 2011),” the famous complex...