Financial Crisis Is a Man Made Catastrophe

What is Financial Crisis? The term pecuniary crisis is applied broadly to a variety of situations in which some financial institutions or assets suddenly lose a large part of their value. In the 19th and early 20th centuries, some financial crises were associated with banking panics, and many another(prenominal) an(prenominal) recessions coincided with these panics. Other situations that are often called financial crises include stock market crashes and the bursting of other financial bubbles, currency crises, and sovereign defaults.Financial crises outright result in a loss of paper wealth they do not directly result in changes in the real economy unless a recession or depression follows. TYPES Is financial crisis really a man-made disaster? Lets take example of Late 2000s financial crisis also known as Global Financial Crisis. The financial crisis was triggered by a complex interplay of valuation and liquidity problems in the United States banking system in 2008. The bursting of the U. S. housing bubble, which peaked in 2007, ca utilise the values of securities tied to U. S. real estate pricing to plummet, damaging financial institutions globally.Questions regarding bank solvency, declines in credit availability and alter investor confidence had an impact on global stock markets, where securities suffered large losses during 2008 and early 2009. Many causes for the financial crisis have been suggested, with varying weight assigned by experts. The United States Senate issued the LevinCoburn Report, which found that the crisis was not a natural disaster, but the result of high risk, complex financial products undisclosed conflicts of interest and the failure of regulators, the credit rate agencies, and the market itself to rein in the excesses of Wall Street. Causes of Financial Crisis Macroeconomic conditions Low interest rate made bank l checking more profitable, while dispense deficits resulted in large capital inflows to the U. S. Both made funds fo r borrowing plentiful and relatively inexpensive. The U. S. housing bubble The falling prices of houses and low interest rates to finance or refinance the houses were easily available. As such home loans were very easily available. But when time came to pay back the loan many defaulted which led to bursting of housing bubble and its impact led to financial crisis.Relaxation in rules led to large banks to increase their financial leverage and expansion of egress of mortgage backed securities. Inaccurate credit ratings Credit ratings were awarded inaccurately which led to an inflated balloon and when it busted it led to financial crisis. Technological factors The cause of the crisis gage be seen also in principles of technological development and in long economic waves based on technological revolutions. Crisis and stagnation were a result of the end of the long economic cycle originally initiated by the Information and telecommunications technological revolution in 1985-2000.The ma rket had been already saturated by new technological wonders (e. g. everybody has his own mobile phone) and what is more important in the developed countries the economy reached limits of productivity in conditions of existing technologies. Boom and collapse of the hind end banking system (SBS) The shadow banking system is the collection of financial entities, infrastructure and practices which support financial transactions that occur beyond the reach of existing state sanctioned monitoring and regulation.The plaza activities of investment banks are subject to regulation and monitoring by central banks and other government institutions but it has been common practice for investment banks to conduct many of their transactions in ways that dont show up on their conventional balance sheet accounting and so are not visible to regulators or unsophisticated investors. The shadow banking system saw a boom but once investors started losing interest and no more wanted their funds to b e used in SBS and changes in business policies led to its collapse which ultimately led to financial crisis.