• Share
  • Email
  • Embed
  • Like
  • Save
  • Private Content
Andy murray (pdf)
 

Andy murray (pdf)

on

  • 862 views

 

Statistics

Views

Total Views
862
Views on SlideShare
862
Embed Views
0

Actions

Likes
0
Downloads
28
Comments
0

0 Embeds 0

No embeds

Accessibility

Upload Details

Uploaded via as Adobe PDF

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

    Andy murray (pdf) Andy murray (pdf) Document Transcript

    • CURRENT ISSUES 2012CURRENT GLOBAL FINANCIAL CRISIS & ITSIMPLICATION TO INTERNATIONAL FINANCIAL INSTITUTION: THE CASE OF US REGION 1
    • CURRENT ISSUES 20121.0 AbstractThe current economy situation of United States towards the current global financial crisis thataffected entire country in the whole world with the factor of current global financial crisis, theimplication into international financial institution, the effect into International Financial Institutionand the government give responses towards the current global financial crisis and InternationalFinancial Institution. The financial institution crisis hit its peak in September and October 2008.The global financial crisis in US also affected to International Finance Corporate (IFC).2.0 Introduction.In the late 1920s, US were experienced with the Great Depression where stock market booms.Great Depression was series of banking in the US beginning in October 1930 were notsuccessfully allayed by the Federal Reserve (Friedman and Schwartz, 1971) and turned to thebad situation. The depression was experienced around the world by the fixed exchange ratelinks of the gold exchange standard and numerous protectionist measures. Many countriesacross the world were finally hit by debt and currency crises. After WWII, the world economy instabile because of Bretton Woods (BW) system where the currencies were kept fixed, capitalcontrols were widespread and financial regulation was strictly designed to prevent a repeat ofthe financial disturbance in the interwar period. Bretton Woods (BW) systems were applied in1971 and show that the capital flows surged. In addition, rate of inflation was high, and controlson the financial system began to collapse and financial crisis problem unfortunate comeback. Itresulted in the collapse of large financial institutions, the bailout of banks by nationalgovernments and decline in stock markets which suffered around the world. In whole regions,the housing market also suffered in 2007 caused the values of securities tied to U.S. real estatepricing decline and damaging financial institutions globally, resulting in evictions, continuedunemployment and foreclosures. Late 2000s the "Great Recession" was emerged in 2007 appears at the lowest level,although unemployment continues to increase. Many small banks and households’ still facebigger problems in bring back their balance sheets. High rates of home foreclosures happenedwith combination of the unemployment with sub-prime loans. The Great Recession hasaffected the whole world economy, with higher effect in some countries than others. The U.S. 2
    • CURRENT ISSUES 2012economy has declined by 1.0% in the second quarter, much less than the 6.4% decline in thefirst quarter. The Great Recession ended in the U.S. in mid 2009. Here the revolution during2007 until 2009 toward U.S. In 2007, sub-prime mortgages was declined the US debt statusand be last point. On 9 August 2007, the seizure in the banking system was happened whichtriggered by BNP Paribas. BNP Paribas announcing that it was stop their activity especially inhedge funds which included three in US mortgage debt. This moment it became clear thatthere were tens of trillions of dollars worth of derivatives swilling round which were worth wasunexpected by the banker. On 15 September 2008, financial crisis to come to U.S and took ayear only. For example, US government allowed the investment bank Lehman Brothers to gobankrupt and assumed that intervention from governments can bail out any bank that got intoserious trouble. The U.S government finding buyer from Bear Stearns whiles the UK hadnationalized Northern Rock. When Lehman Brothers was bankruptcy, they assume that all bigbanks will bankruptcy because more risky. Within a month, the assumptions were truth andforced western governments to injected larger sums of capital into their banks to prevent thebank’s collapse. The banks were rescued in short period of time, but it was too late to preventthe global economy from going into fall. Credit flows to the private sector were retarded. This isbecause consumer and business decrease confidence. After a period of high oil prices, it’scome to persuaded central banks to keep interest rates high to against inflation rather than tocut them in anticipation of the financial crisis spreading to the real economy. On 2 April 2009,G20 group of developed and developing nations at London world leaders committedthemselves to a $5tn (£3tn) fiscal development, an extra $1.1tn of resources to help theInternational Monetary Fund and other global institutions increase jobs and growth, and toreform of the banks. On 9 May 2010 it’s be focus of concern switched from the private sector to the publicsector because the IMF and the European Union declare they would supply fund to helpGreece. Greece had problems as it covered its public finances and facing difficult stages incollecting taxes, but other countries started to become worry about the size of Greece budgetdeficits. It’s affecting policy decisions in the UK, the euro zone and, most recently in the US.The morphing of a private debt crisis into a sovereign debt crisis that was complete when therating agency, S&P, waited for Wall Street to shut up shop in weekend before declared thatAmericas debt no longer is classed as top-notch triple A. it’s become worst time and thebiggest sell-off in stock markets since late 2008. The US is drowning in negative equity andforeclosed homes were terrible news for Barack Obama because not delivered economic 3
    • CURRENT ISSUES 2012recovery. Fiscal policy will be tightened over the coming months as tax breaks expire andpublic spending is cut. There will be a long period of weak growth and high unemployment. Thebanks pay down the excessive levels of debt collected in the bubble years and the globaleconomy will be decline back into recession.3.0 Scope of studyThe scope of study is reviews of the current economy situation of United States towards thecurrent global financial crisis that affected entire country in the whole world. In this research wewant to know the implication of United States to the International Financial Institution thatincluding the implication, effect and government responses whether US recover or not basedon factors in current global financial crisis such as subprime mortgage, asset bubble and lastlythe credit crunch.4.0 Objective1. To identify the three main factor of current global financial crisis in US2. To determine the implication into International Financial Institution in US.3. To identify the effect into International Financial Institution in US.4. To determine the government responses of US towards the current global financial crisis and International Financial Institution in US.5.0 Literature ReviewIn September and October 2008, the US suffered a severe financial dislocation that saw anumber of large financial institutions collapse. Although this shock was of particular note, it isbest understood as the culmination of a credit crunch that had begun in the summer of 2006and continued into 2007. The US housing market is seen by many as the root cause of thefinancial crisis. Since the late 1990s, house prices grew rapidly in response to a number ofcontributing factors including persistently low interest rates, over-generous lending andspeculation. The bursting of the housing bubble, in addition to simultaneous crashes in otherasset bubbles, triggered the credit crisis. However, it was the complex web of financialinnovations that had purportedly been employed to reduce risk which ensured that the crisis 4
    • CURRENT ISSUES 2012spread across the financial markets and into the real economy. In particular, all manner ofprofit-seeking financial institutions used a complex financial process characterised by highlyleveraged borrowing, inadequate risk analysis and limited regulation to bet on one outcome abet which proved to be misguided when asset prices collapsed. As Ben S. Bernanke, 1983 recognized that its effects via the money supply, thefinancial crisis of 1930-33 affected the macro economy by reducing the quality of certainfinancial services, primarily credit intermediation. The basic argument is to be made in twosteps. First, it must be shown that the disruption of the financial sector by the banking and debtcrises raised the real cost of intermediation between lenders and certain classes of borrowers.Second, the link between higher intermediation costs and, the decline in aggregate output mustbe established. There are many ways in which problems in credit markets might potentiallyaffect the macro economy. Several of these could be grouped under the heading of "effects onaggregate supply". For example, if credit flows are dammed up, potential borrowers in theeconomy may not be able to secure funds to undertake worthwhile activities or investments atthe same time, savers may have to devote their funds to inferior uses. About the cause of current crisis Stephen said US house prices rose dramatically from1998 until late 2005, more than doubling over this period, and far faster than average wages.Further support for the existence of a bubble came from the ratio of house prices to rentingcosts which rocketed upwards around 1999. (Stephen, 2008). Furthermore, Yale economistRobert Schiller found that inflation-adjusted house prices had remained relatively constant overthe period 1899-1995. Pointing to the escalation in house prices and marked regionaldisparities, Shiller correctly predicted the imminent collapse of what he believed was a housingbubble. (Robert Shiller, 2005). In addition, individual-level analysis by Demyanyk and vanHemert finds that, controlling for borrower and loan characteristics as well as macroeconomicconditions, the credit quality of new subprime mortgages fell each year from 2001 to 2006. (Yuliya, Hemert,2008). In other cases, there existed an incentive to voluntarily foreclose wherethe value of the house and future gains associated with a stronger credit rating was smallerthan the value of the outstanding mortgage because of generous foreclosure legislation.(Anthony,2008). Avoiding financial instability requires several types of institutional reforms. First,prudential regulation of the banking and financial system must be strengthened in order toprevent these types of financial crises. (Mishkin, 2003). Second, the safety net provided by the 5
    • CURRENT ISSUES 2012domestic government and the international financial institutions set up by Bretton Woods mightneed to be limited in order to reduce the moral hazard incentives for banks to take on too muchrisk. (Demirguc-Kunt and Kane, 2002), Third, currency mismatches need to be limited in orderto prevent currency devaluations from destroying balance sheets. Although prudentialregulations to ensure that financial institutions match up any foreign-denominated liabilities withforeign-denominated assets may help reduce currency risk, they do not go nearly far enough.(Mishkin,1996). Fourth, policies to increase the openness of an economy may also help limitthe severity of financial crises in emerging market countries. The reason why openness mayaffect financial fragility is that businesses in the tradable sector have balance sheets which areless exposed to negative consequences from a devaluation of the currency when their debtsare denominated in foreign currency. Because the goods they produce are tradedinternationally, they are more likely to be priced in foreign currency. Governments are providing support and doing what so ever they can to prevent theireconomical structure US government injected $800 billion in the economy to support thestructure, UK government has announced a package of $692 billion, European Union is aboutto start an economic recovery plan and IMF has called for minimum financial support of $100billion (BBC news, 2008). Also on the research part, E. Philip Davis and Dilruba Karimsuggested an “Early warning System” to cop better with such crisis; the proposed two models“Logit” as a global early warning system and “Signal Extraction” for country specific earlywarning system. DeBoer (2008) believe that such bailout programs and other supportingpackages from governments is like offering protection from a negative outcome which is moreappropriate to be called as “moral hazard” this trend could increase the possibility of future badupshots. Warne (2008) believes that it’s the matter of confidence of investors, as long as it isrestored, crisis will be over; but it cannot be done when we daily hear news about theabandonment of financial institutions, it needs some financial stability. OECD Secretarygeneral, Gurria (2008) hopes that the effective macroeconomic policies and vital financialreforms will turn down the heat and normal financial conditions as well as the growth rates willreturn to normal in 2009. Yilmaz (2008) acknowledged that the worst part of the crisis is alreadyover and the markets are suffering from what can be called ‘the after shocks’. Sha Zukang(2008) says that normalization of economic activities need “global and symentic” solutions, hestated that current “global Economic Governance System” is derisory for the prevention of suchcrisis. Governments on the other hand are doing what so ever they can to prevent theirfinancial institutes to fall and protect their economical structure. 6
    • CURRENT ISSUES 2012 Last IMF/World Bank need to made a strong pitch for changes in the operatingframework of the multilateral financial institutions. This framework needs to puts per capitaincome as the defining parameter for the assistance from the IFI’s. On that basis, US, whereper capita income is high by developing-country standards, is not eligible for specialconcessionary assistance. The essence of US case is that notwithstanding our high per capitaincomes, the US faces specific vulnerabilities arriving from small size, susceptibility to naturaldisasters and the impact of climate change and the very high public debt ratio. The lessons thatthis crisis holds for the region that the last few months should forcefully bring to us, it should bethat, in this new global environment, deeper regional integration is absolutely critical for thesurvival of all the economies. It is clearly a case of we swim together or we sink togetheradmittedly some faster than others. For years, we have talked closer integration. This wouldseem to be the time to accelerate our efforts. We need to seriously consider and expediteseveral things such as, to bring regional production structures into better alignment. Second,the region needs to develop a policy agenda to improve its resilience in future crises. Third, weneed to quickly upgrade and harmonize regulatory and supervisory systems and put in placemechanisms for regional regulatory coordination. Last but not least as the EU has shown, thecreation of a more cohesive regional economic and political bloc will strengthen our capacity tobargain collectively with international financial institutions like the IMF, World Bank and WTOand the OECD.6.0 Discussion and Findings6.1 Factor of current global financial crisisUnited States was born from the Britain’s American colonies broke with the mother country in1776 and were recognized as the new nation of the United States of America following theTreaty of Paris. US has the largest and most technologically powerful econ omy inthe world, with a per capita GDP of $48,100.The crisis in 2007 in the UnitedStates directly due to the collapse of the housing bubble in the United States in 2006, whichresulted in about October 2007, the so-called crisis of subprime mortgages. The impact of themortgage crisis began to manifest itself in an extremely serious since the beginning of 2008,getting first to the U.S. financial system, and then to international, resulting in a serious liquiditycrisis, and causing, indirectly, other economic phenomena, such as a global food crisis, 7
    • CURRENT ISSUES 2012different stock collapse (like the stock in January 2008 and the global stock market crisis ofOctober 2008) and, overall, an economic crisis at international level. The subprime mortgage crisis, popularly known as the “mortgage mess” or “mortgagemeltdown,” came to the public’s attention when a steep rise in home foreclosures in 2006spiralled seemingly out of control in 2007, triggering a national financial crisis that went globalwithin the year. Consumer spending is down, the housing market has plummeted, foreclosurenumbers continue to rise and the stock market has been shaken. The immediate cause ortrigger of the crisis was the bursting of the United States housing bubble which peaked inapproximately 2005–2006. Already-rising default rates on "subprime" and adjustable ratemortgages (ARM) began to increase quickly thereafter. As banks began to give out more loansto potential home owners, housing prices began to rise. As banks began to give out more loansto potential home owners, housing prices began to rise. Banks would encourage home ownersto take on considerably high loans in the belief they would be able to pay them back morequickly, overlooking the interest rates. Once the interest rates began to rise in mid 2007, housing prices dropped significantand resulting the number of foreclosed homes also began to rise. As part of the housing andcredit booms, the number of financial agreements called mortgage-backed securities (MBS)and collateralized debt obligations (CDO), which derived their value from mortgage paymentsand housing prices, greatly increased. Such financial innovation enabled institutions andinvestors around the world to invest in the U.S. housing market. As housing prices declined,major global financial institutions that had borrowed and invested heavily in subprime MBSreported significant losses. Falling prices also resulted in homes worth less than the mortgageloan, providing a financial incentive to enter foreclosure. The ongoing foreclosure epidemic thatbegan in late 2006 in the U.S. continues to drain wealth from consumers and erodes thefinancial strength of banking institutions. Defaults and losses on other loan types also increased significantly as the crisisexpanded from the housing market to other parts of the economy. Total losses are estimated inthe trillions of U.S. dollars globally. While the housing and credit bubbles were building, a seriesof factors caused the financial system to both expand and become increasingly fragile, aprocess called financialization. The crisis directly due to the collapse of the housing bubble inthe United States in 2006, which resulted in about October 2007, the so-called crisis ofsubprime mortgages. The percentage of new lower-quality subprime mortgages rose from the 8
    • CURRENT ISSUES 2012historical 8% or lower range to approximately 20% from 2003–2006, with much higher ratios insome parts of the U.S. A high percentage of these subprime mortgages, over 90% in 2006 forexample, were adjustable-rate mortgages. These two changes were part of a broader trend oflowered lending standards and higher-risk mortgage products. After U.S. house sales pricespeaked in mid-2006 and began their steep decline forthwith, refinancing became more difficult.As adjustable-rate mortgages began to reset at higher interest rates (causing higher monthlypayments), mortgage delinquencies soared. Securities backed with mortgages, includingsubprime mortgages, widely held by financial firms, lost most of their value. Global investors also drastically reduced purchases of mortgage-backed debt andother securities as part of a decline in the capacity and willingness of the private financialsystem to support lending. Lenders began originating large numbers of high risk mortgagesfrom around 2004 to 2007, and loans from those vintage years exhibited higher default ratesthan loans made either before or after. An increase in loan incentives such as easy initial termsand a long-term trend of rising housing prices had encouraged borrowers to assume difficultmortgages in the belief they would be able to quickly refinance at more favorable terms.Once interest rates began to rise and housing prices started to drop moderately in 2006–2007in many parts of the U.S., refinancing became more difficult. Defaults and foreclosure activityincreased dramatically as easy initial terms expired, home prices failed to go up as anticipated,and ARM interest rates reset higher. Falling prices also resulted in 23% of U.S. homes worthless than the mortgage loan by September 2010, providing a financial incentive for borrowersto enter foreclosure. Subprime mortgages remained below 10% of all mortgage originations until 2004,when they spiked to nearly 20% and remained there through the 2005-2006 peak of the UnitedStates housing bubble. Some long-time critics of government claim that the roots of the crisiscan be traced directly to risky lending by government sponsored entities FannieMae and Freddie Mac. Freddie Mac CEO Richard Syron agreed with Greenspan that theUnited States had a housing bubble and concurred with Yale economist Robert Shiller’s 2007warning that home prices “appeared overvalued” and that the necessary correction could “lastyears with trillions of dollars of home value being lost.” Greenspan also warned of “large doubledigit declines” in home values, much larger than most would expect. Subprime borrowerstypically have weakened credit histories and reduced repayment capacity. Subprime loanshave a higher risk of default than loans to prime borrowers. If a borrower is delinquent inmaking timely mortgage payments to the loan servicer (a bank or other financial firm), the 9
    • CURRENT ISSUES 2012lender may take possession of the property, in a process called foreclosure. Subprime lendingwas a major contributor to this increase in home ownership rates and in the overall demand forhousing, which drove prices higher. The credit and house price explosion led to a building boom and eventually to a surplusof unsold homes, which caused U.S. housing prices to peak and begin declining in mid-2006.Easy credit, and a belief that house prices would continue to appreciate, had encouraged manysubprime borrowers to obtain adjustable-rate mortgages. These mortgages enticed borrowerswith a below market interest rate for some predetermined period, followed by market interestrates for the remainder of the mortgages term. Borrowers, who would not be able to make thehigher payments once the initial grace period ended, were planning to refinance theirmortgages after a year or two of appreciation. But refinancing became more difficult, oncehouse prices began to decline in many parts of the USA. Borrowers who found themselvesunable to escape higher monthly payments by refinancing began to default. This credit andhouse price explosion led to a building boom and eventually to a surplus of unsold homes,which caused U.S. housing prices to peak and begin declining in mid-2006. Easy credit, and abelief that house prices would continue to appreciate, had encouraged many subprimeborrowers to obtain adjustable-rate mortgages. These mortgages enticed borrowers with a below market interest rate for somepredetermined period, followed by market interest rates for the remainder of the mortgagesterm. Borrowers who would not be able to make the higher payments once the initial graceperiod ended were planning to refinance their mortgages after a year or two of appreciation.But refinancing became more difficult, once house prices began to decline in many parts of theUSA. Borrowers who found themselves unable to escape higher monthly payments byrefinancing began to default. By September 2008, average U.S. housing prices had declined byover 20% from their mid-2006 peak. This major and unexpected decline in house prices meansthat many borrowers have zero or negative equity in their homes, meaning their homes wereworth less than their mortgages. As of March 2008, an estimated 8.8 million borrowers to10.8% of all homeowners had negative equity in their homes, a number that is believed to haverisen to 12 million by November 2008. By September 2010, 23% of all U.S. homes were worth less than the mortgageloan. Borrowers in this situation have an incentive to default on their mortgages as a mortgageis typically nonrecourse debt secured against the property. Economist Stan Leibowitz argued in 10
    • CURRENT ISSUES 2012the Wall Street Journal that although only 12% of homes had negative equity, they comprised47% of foreclosures during the second half of 2008 and concluded that the extent of equity inthe home was the key factor in foreclosure, rather than the type of loan, credit worthiness of theborrower, or ability to pay. Increasing foreclosure rates increases the inventory of housesoffered for sale. The number of new homes sold in 2007 was 26.4% less than in the precedingyear. By January 2008, the inventory of unsold new homes was 9.8 times the December 2007sales volume. The United States housing bubble is an economic bubble affecting many parts ofthe United States housing market in over half of American states. Housing prices peaked inearly 2006, started to decline in 2006 and 2007. Increased foreclosure rates in 2006–2007among U.S. homeowners led to a crisis in August 2008 for the subprime, collateralized debtobligation (CDO), mortgage, credit, hedge fund, and foreign bank markets. In October 2007,the U.S. Secretary of the Treasury called the bursting housing bubble "the most significant riskto our economy. The derivatives such as mortgage-backed securities were insured by creditdefault swaps or so investors thought. Hedge fund managers created a huge demand for thesesupposedly risk-free securities, and therefore the mortgages that backed them. To meet this demand for mortgages, banks and mortgage brokers offered home loansto just about anyone. This drove up demand for housing, which homebuilders tried to meet.Many people bought homes, not to live in them or even rent them, but just as investments tosell as prices kept rising. When the homebuilders finally caught up with demand, housing pricesstarted to fall in 2006. This burst the asset bubble, and subsequently led to the subprimemortgage crisis in 2006, the banking credit crisis in 2007 and finally the global financial crisis in2008. Housing bubbles may occur in local or global real estate markets. In their late stages,they are typically characterized by rapid increases in the valuations of real property untilunsustainable levels are reached relative to incomes, price-to-rent ratios, and other economicindicators of affordability. This may be followed by decreases in home prices that result in manyowners finding themselves in a position of negative equity—a mortgage debt higher than thevalue of the property. The underlying causes of the housing bubble are complex. Factorsinclude tax policy (exemption of housing from capital gains), historically low interest rates, laxlending standards, failure of regulators to intervene, and speculative fever. This bubble may berelated to the stock market or dot-com bubble of the 1990s. This bubble roughly coincides withthe real estate bubbles of the United Kingdom, Hong Kong, Spain, Poland, Hungary and SouthKorea. 11
    • CURRENT ISSUES 2012 The impact of booming home valuations on the U.S. economy since the 2001–2002 recession was an important factor in the recovery, because a large component ofconsumer spending was fuelled by the related refinancing boom, which allowed people to bothreduce their monthly mortgage payments with lower interest rates and withdraw equity fromtheir homes as their value increased. On the basis of 2006 market data that were indicating amarked decline, including lower sales, rising inventories, falling median prices and increasedforeclosure rates some economists have concluded that the correction in the U.S. housingmarket began in 2006. One possible cause of bubbles is excessive monetary liquidity in the financial system,inducing lax or inappropriate lending standards by the banks, which asset markets are thencaused to be vulnerable to volatile hyperinflation caused by short-term, leveraged speculation.Asset bubble is formed when the prices of specific asset classes are over-inflated due toexcess demand for the asset as an investment vehicle. Prices rise quickly over a short periodof time, and are not supported by underlying demand for the product itself. An asset bubble canbe aggravated by a supply shortage, or an over-expansion of the money supply, but mostmodern asset bubbles are primarily a result of demand-pull inflation. It is a form of inflation thatis not always accurately captured in the Consumer Price Index (CPI). For that reason, assetbubbles can be aggravated by low interest rates. The Federal Reserve reduced interest rates to an extreme low of 1% so that afterinflation there were negative interest rates. As a result of this, mortgage rates fell to a historicallow. A significant change in the market (interest/mortgage rates) combined with an increasedsupply of money is the perfect formula for an Asset Bubble. Due to these low rates, the supplyof money was high and the economy saw a huge increase in its peopleborrowing. Commercial Banks had doubled the amount of real-estate loans they wouldnormally issue. There all-time low interest loans were extended to people with worse and worsecredit ratings. The knock-on effect of this was a huge increase in the demand for properties,housing and other real estate assets. The bubble began to grow and the value of the realestate assets shot up. The mortgages the banks were lending carried huge risk as many werelent to people with poor credit histories securitization of the loans (bundling loans banks haveissued together so they can be sold, at profit, to another bank) disguised a lot of the risk. Asborrowers slowly began to default on their loans and declare bankruptcy, banks began to 12
    • CURRENT ISSUES 2012realise that they had underestimated the risk and the value of the securities began to fall andsent the US into recession. Between 2004 and 2006, the Federal Reserve Board raised interest rates 17 times,increasing them from 1 percent to 5.25 percent. The Fed stopped raising rates because offears that an accelerating downturn in the housing market could undermine the overalleconomy. Some economists, like New York University economist Nouriel Roubini, feel that theFed should have tightened up on the rates earlier than it did “to avoid a festering of the housingbubble early on.” Roubini also warned that because of slumping sales and prices in August2006, the housing sector was in “free fall” and would derail the rest of the economy, causing arecession in 2007.The credit crunch is affecting businesses and consumers alike. On thebusiness end, many companies are finding it difficult to obtain large loans in order to expandoperations, or in some cases pay operating expenses. Many companies are in serious financialtrouble and layoffs are a distinct possibility. In 2008, a series of bank and insurance companyfailures triggered a financial crisis that effectively halted global credit markets and requiredunprecedented government intervention. Fannie and Freddie Mac (FRE) were both taken overby the government. Lehman Brothers declared bankruptcy on September 14th after failing tofind a buyer. Bank of America agreed to purchase Merrill Lynch (MER), and American InternationalGroup (AIG)was saved by an $85 billion capital injection by the federal government. Shortlyafter, on September 25th, J P Morgan Chase (JPM) agreed to purchase the assetsof Washington Mutual (WM) in what was the biggest bank failure in history. In fact, bySeptember 17, 2008, more public corporations had filed for bankruptcy in the U.S. than in all of2007.These failures caused a crisis of confidence that made banks reluctant to lend moneyamongst themselves, or for that matter, to anyone. The crisis has its roots in real estate andthe subprime lending crisis. Commercial and residential properties saw their values increaseprecipitously in a real estate boom that began in the 1990s and increased uninterrupted fornearly a decade. Increases in housing prices coincided with the investment and bankingindustry lowering lending standards to market mortgages to unqualified buyers allowing them totake out mortgages while at the same time government deregulation blended the lines betweentraditional investment banks and mortgage lenders. Real estate loans were spread throughout the financial system in the formof CDOs and other complex derivatives in order to disperse risk, however, when home values 13
    • CURRENT ISSUES 2012failed to rise and home owners failed to keep up with their payments, banks were forced toacknowledge huge write downs and write offs on these products. These write downs foundseveral institutions at the brink of insolvency with many being forced to raise capital or gobankrupt. Credit rating agencies are now under scrutiny for having given investment-graderatings to MBSs based on risky subprime mortgage loans. These high ratings enabled these MBS to be sold to investors, thereby financing thehousing boom. These ratings were believed justified because of risk reducing practices, suchas credit default insurance and equity investors willing to bear the first losses. However, thereare also indications that some involved in rating subprime-related securities knew at the timethat the rating process was faulty. Critics allege that the rating agencies suffered from conflictsof interest, as they were paid by investment banks and other firms that organize and sellstructured securities to investors On 11 June 2008, the SEC proposed rules designed tomitigate perceived conflicts of interest between rating agencies and issuers of structuredsecurities. On 3 December 2008, the SEC approved measures to strengthen oversight of creditrating agencies, following a ten-month investigation that found "significant weaknesses inratings practices," including conflicts of interest. Many financial institutions, investment banks inparticular, issued large amounts of debt during 2004–2007, and invested the proceedsin mortgage-backed securities (MBS), essentially betting that house prices would continue torise, and that households would continue to make their mortgage payments. Borrowing at alower interest rate and investing the proceeds at a higher interest rate is a form of financialleverage. This is analogous to an individual taking out a second mortgage on his residence toinvest in the stock market. This strategy proved profitable during the housing boom, butresulted in large losses when house prices began to decline and mortgages began to default.Beginning in 2007, financial institutions and individual investors holding MBS also sufferedsignificant losses from mortgage payment defaults and the resulting decline in the value ofMBS. In the years leading up to the crisis, the top four U.S. depository banks moved anestimated $5.2 trillion in assets and liabilities off-balance sheet into special purpose vehicles orother entities in the shadow banking system. This enabled them to essentially bypass existingregulations regarding minimum capital ratios, thereby increasing leverage and profits during theboom but increasing losses during the crisis. 14
    • CURRENT ISSUES 2012 New accounting guidance will require them to put some of these assets back onto theirbooks during 2009, which will significantly reduce their capital ratios. One news agencyestimated this amount to be between $500 billion and $1 trillion. This effect was considered aspart of the stress tests performed by the government during 2009. Credit default swaps (CDS)are financial instruments used as a hedge and protection for debt holders, in particular MBSinvestors, from the risk of default, or by speculators to profit from default. As the net worth ofbanks and other financial institutions deteriorated because of losses related to subprimemortgages, the likelihood increased that those providing the protection would have to pay theircounterparties. This created uncertainty across the system, as investors wondered whichcompanies would be required to pay to cover mortgage defaults. The Financial Crisis InquiryCommission reported in January 2011 that CDS contributed significantly to the crisis.Companies were able to sell protection to investors against the default of mortgage-backedsecurities, helping to launch and expand the market for new, complex instruments such asCDOs. This further fuelled the housing bubble. They also amplified the losses from thecollapse of the housing bubble by allowing multiple bets on the same securities and helpedspread these bets throughout the financial system. Companies selling protection, such as AIG,were not required to set aside sufficient capital to cover their obligations when significantdefaults occurred. Because many CDS were not traded on exchanges, the obligations of keyfinancial institutions became hard to measure, creating uncertainty in the financial system In a June 2008 speech, President of the NY Federal Reserve Bank Timothy Geithner,who later became Secretary of the Treasury, placed significant blame for the freezing of creditmarkets on a "run" on the entities in the "parallel" banking system, also called the shadowbanking system. These entities became critical to the credit markets underpinning the financialsystem, but were not subject to the same regulatory controls as depository banks. Further,these entities were vulnerable because they borrowed short-term in liquid markets to purchaselong-term, illiquid and risky assets. This meant that disruptions in credit markets would makethem subject to rapid deleveraging, selling their long-term assets at depressed prices. Hedescribed the significance of these entities: "In early 2007, asset-backed commercialpaper conduits, in structured investment vehicles, in auction-rate preferred securities, tenderoption bonds and variable rate demand notes, had a combined asset size of roughly $2.2trillion. Assets financed overnight in trip arty repo grew to $2.5 trillion. Assets held in hedgefunds grew to roughly $1.8 trillion. 15
    • CURRENT ISSUES 2012 The combined balance sheets of the then five major investment banks totaled $4trillion. In comparison, the total assets of the top five bank holding companies in the UnitedStates at that point were just over $6 trillion, and total assets of the entire banking system wereabout $10 trillion." He stated that the "combined effect of these factors was a financial systemvulnerable to self-reinforcing asset price and credit cycles. The securitization marketssupported by the shadow banking system started to close down in the spring of 2007 andnearly shut-down in the fall of 2008. More than a third of the private credit markets thusbecame unavailable as a source of funds. According to the Brookings Institution, the traditionalbanking system does not have the capital to close this gap as of June 2009: "It would take anumber of years of strong profits to generate sufficient capital to support that additional lendingvolume." The authors also indicate that some forms of securitization are "likely to vanishforever, having been an artefact of excessively loose credit conditions.6.2 Implication of US financial crisis towards international financial institution6.2.1 Regulations and the development of marketsOne of the informative studies in the evolution of US security market regulation shown that theyis no binding international financial system and global system coordinated. This condition givethe opportunity to the restrictions between state of the Bank Holding Company in the USincreased banks activities outside the country for a decades and contributed to cross borderregulatory arbitrage. US also as financial holding companies that prohibited from holding non-financial institutions. These situations contributed to an increasingly interdependent globaleconomy that tries to fix with the national financial system in the absence of an effective globalframework with full support of all nations. Both national and international markets are tend tobecome distorted and also lead to further global financial instability over time. A number of studies have shown that financial globalization has been slow in slowingrate in many parts of the world. Obviously, the recent global financial crisis has been impairedby capital outflow from developing to developed countries and when there is uncertaintyregarding the rate of financial globalization after the global financial crisis. The state banks alsoissued notes that were used locally as paper money. Moreover, bank notes of the westernstates heavily discounted by the eastern states due to financial mismanagement of some banksin the western states. In the late of 20th century it can as the emergence of the Euro and the 16
    • CURRENT ISSUES 2012European Central Bank. Although there are many numbers of challenges with the fiscalunification of European countries, nevertheless, economic and financial integration hasreduced to increased efficiency with the emergence of a European Central Bank and a singleEuropean currency. This type of regulation and market development in Europe is come afterdisasters and the effects of new national regulatory frameworks in the absence of a globallyintegrated system that led to regulatory arbitrage and ineffectiveness of the new nationalrules/regulations.6.2.2 Emergence of international institutionsOne of the cases of how a crisis leads to change is the emergence of the US Federal ReserveSystem in 1913. During 1837 to 1862 US are using a free banking system, followed by theNational Banking Act introduced during the Civil War. This created a system of national bankswhich a system without a central bank. However, a number of banking crises started on 1873that influence most of the traders and financial players and finally led to the emergence of acentral bank in the US in 1913. During the Great Depression, US nations responded to the global financial crisisalmost in isolation towards each other. The World Economic Forum as nations took anationalistic approach that held in London on 1933 also was a failure. However, in response tothe Great Depression, a number of national rules and regulations were created in isolation fromother nations. Furthermore, some countries took a nationalistic approach that influence to anumber of global issues such as trade with increasing their tariff walls as a way of defendingtheir domestic. Furthermore, national governments tried to solve their banking crises inisolation through the implementation to new national policies, rules and regulations such as theGlass-Steagall in 1933. On 1937 the US economy entered into a double dip recession in 1937that led the US economy to reduce unemployment and recover from almost a decade ofeconomic slump. Eventually, during the Bretton Woods conference that been held during the GreatDepression, the conference and up with the establishment of the International Monetary Fund,the World Bank and the General Agreements on Tariffs and Trade (GATT) which led to theformation of the World Trade Organization. The emergence of these international institutions 17
    • CURRENT ISSUES 2012contributed to the promotion and better coordination of global financial stability, free trade anddevelopment.6.2.3 Reforms of the international financial architectureThe recent global financial crisis gives a unique opportunity for both national and internationalinstitutions to determine a number of issues that led to the recent global recession and possiblyways to improve international financial systems. A study by the IMF (2009a–c) of internationalfinancial architecture stated that the recent global financial crisis has revealed important flawsin the current global architecture. After the Asian currency crisis, the IMF referred to globalfinancial stability as a global public good. With increasing of financial globalization, most of theinternational community has recognized the importance of global financial stability. During the recent global financial crisis, international community took the opportunity toseriously address a number of flaws that have existed in the international financial architecture,as a securing way for better global financial stability. As a major global forum to deal with theglobal economic and financial crisis has been a major development of the global decision-making process in recent times G20 has been emerge. The G20 agreed with the replacementof the Financial Stability Forum (FSF) with a new super national board called the FinancialStability Board (FSB). This Board collaborates with other international institutions thatresponsible for safeguarding the global financial stability. However, the stability of global financial is not a national public good but rather a globalpublic good. This is because capital and financial products can cross national bordersimmediately and sit across many multinational firms’ balance sheets in different parts of theworld. Furthermore, some of these international assets and financial products might containtoxic components that could profane financial markets of host countries.6.2.4 New global framework and global leadershipIn the past, global financial crises contributed to changes in or the emergence of newinternational institutions also the rules and principles. New global frameworks in May 2009 actas the main method to effectively implement the policy recommendations outlined in the G20communiqué in London. At the present time, despite a number of objectives listed for the FSBto carry out in collaboration with national regulators, there is no guarantee that all nationalregulators comply with the objectives of the FSB. There are also challenges for the FSB towork with all the offshore canters as a way of removing regulatory arbitrage. Furthermore, there 18
    • CURRENT ISSUES 2012is significant reliance on national authorities to ensure that international institutions can fullydischarge their global responsibility. One of the challenges on 21st century is how to deal with global financial problems thatrequire global solutions for global solutions that require global ownership and global leadership.It is importance requirement of having an effective global framework to a global financialsystem and the international financial architecture especially in the 21st century. In otherwords, an effective global financial system and successful implementation of the internationalagreements are also essential to ensure global financial stability and sustained globaleconomic growth. Furthermore, dynamic interaction between the national and global economycould instantaneously move from one country to another where less effective internationalinstitutions could negatively affect national institutions. For example the Asian currency crisisand the recent global financial crisis have shown, less sound and effective national institutionscould also affect the effectiveness of the international financial system. Moreover they are moreinformation available to international institutions which could assist national regulators to seethe global implications of some of the financial risk associated with national financial productsbetter. However, in the presence of more international accountability, national regulators maywell be more vigilant in the discharge of their expected responsibility.6.3 The Effect of Current Global Financial CrisisThe global financial crisis started to show its effects in the middle of 2007 and into 2008. In fact,since August 2007, financial markets and financial institutions all over the world have been hitby catastrophic developments with existing of problems in performance of subprime mortgagesin the US. Around the world stock markets have fallen, the Central banks have providedsupport on the order of hundreds of billions, intervening not only to support the markets butalso to prevent the breakdown of individual institutions. While the large financial institutionshave collapsed or been bought out. Lastly, the governments in even the wealthiest nationshave had to come up with rescue packages to bail out their financial systems. Many financial institutions began to be affected, particularly those with large exposuresto subprime-related structured products, leading to a series of failures of several large USfinancial institutions (Bear Stearns, American Insurance Group, Lehman Brothers, WashingtonMutual, etc.). As a result, transactions in global interbank markets began to freeze due to theperceived rise in counterparty risks, exacerbating the liquidity problem even for healthierfinancial institutions. The financial institution crisis hit its peak in September and October 2008. 19
    • CURRENT ISSUES 2012Several major institutions failed, were acquired under duress, or were subject to governmenttakeover. These include Lehman Brothers, Merrill Lynch, Fannie Mae, Freddie Mac,Washington Mutual, Wachovia, Citigroup, and AIG. The US sub-prime mortgage fall down and the breakdown of connected financial sectortechnologies currently working their way through world financial markets have been interpretedas the shock both that was caused by the system and that will finally bring the Bretton Woods IIsystem to its end. The Bretton Woods II system requires large and sustained investment in theUS by foreign government and individuals. It seems prudent to doubt that the required faith inthe US economy and financial system can be maintained in the face of the miserableperformance of US assets and institutions. Sharp decline in the market value of US financialassets and a general failure of most valuation models in a widespread banking panic couldindeed threaten the Bretton Woods II or any other international monetary system. In absolute terms, the numbers involved seem large. As of April 2008, the InternationalMonetary Fund (IMF) was predicting aggregate losses of 945 billion dollars overall, 565 billiondollars in US residential real-estate lending and 495 billion dollars from repercussions of thecrisis on other securities. By October 2008, the IMF had raised its loss prediction to 1.4 trilliondollars overall, 750 billion dollars in US residential real-estate lending and 650 billion dollarsfrom repercussion of the crisis on other securities. Moreover, the IMF estimated that large USand European banks lost more than $1 trillion on toxic assets and from bad loans from January2007 to September 2009. These loses are expected to top $2.8 trillion from 2007 until 2010.US banks losses were forecast to hit $1 trillion and European bank losses will reach $1.6trillion. The IMF estimated that US banks were about 60% through their losses, but British andEuro zone banks only 40%. The global financial crisis has impacted International Development Association (IDA)eligible countries across the world and has prompted a strong response from the internationalcommunity. The crisis commenced in industrialized countries and spread to IDA eligiblecountries which were already coping with the impact of food and oil price increases. While thecrisis reached these countries with some delay, it has caused significant income and job lossesthrough declining external trade, remittances, and foreign direct investment flows. The slow-down in economic activity has reduced fiscal revenues in many countries putting core spendingat risk. In IDA only countries annual core spending needs at risk are estimated to amount toabout US$11.6 billion in 2009. Moreover, the growth rate of IDA countries is expected to drop 20
    • CURRENT ISSUES 2012from 5.4 percent in 2008 to 2.2 percent in 2009. Considering population growth in IDAcountries, these numbers imply that many countries face the prospect of stagnant or evendeclining per capita incomes. The global financial crisis in US also affected to International Finance Corporate (IFC).IFC’s capital position was impaired by the crisis, but could have supported a moderatecountercyclical response overall. In September 2008, IFC’s balance sheet containedsubstantial unrealized equity gains, and write-downs were significant ($1 billion).Nonperforming loans were relatively low, but expected to rise. IFC had also committed tosignificant grants to IDA ($1.75 billion between fiscal 2008 and 2010). Nonetheless, IFC’sestimate that it could invest 5 percent more per year in fiscal 2009 until 2011 than in 2008 wasconservative, given a rating agency assessment that IFC was well capitalized and experiencethat showed gains in investing counter cyclically during a crisis. Ultimately, IFC investments fellnearly 20 percent in the first year of the crisis well below expectation.6.4 Government responses whether the US goverment overcome or not.Crisis that has begun with housing bubble which the dramatic collapse of housing price due toa low interest rates that have make the criticism occur whereby the federal kept the interestrates too low for a long period. Because of the collapse, many banks have failed and began toliquidate their assets. Besides that, the lending markets froze and the stock market alsodecline. Government has response to the crisis by reducing the federal funds rate near to zerolevels and printing more money. United States congress also has passes a financial bill namelyDodd-Frank Wall Street Reform and Consumer Protection Act in order to protect the customersfrom the unfair treatment from the financial institution. The bill will protect the consumer bycreating the Consumer Financial Protection Bureau. Consumer will get the authority to get clearand accurate information for the mortgage, credit card and other financial product. It is alsoprotect the customer from hidden fees, unfair term and so on. The bill also created theFinancial Oversight Council (FSOC) and has adopted the “Volcker Rule”. FSOC canrecommend to Federal Reserve on imposing constrain and also may force the financialcompanies to divest its asstes if they pose a threat to United State financial system. (Summaryof Dodd - Frank Wall Street Reform and Consumer Protection Act, 2010). 21
    • CURRENT ISSUES 2012 Federal Reserve Chairman, Dr Ben Bemanke has argued that the Federal Reservemust evaluate what have their learned in the past experience such as in the sub-prime crisis.He has draw four major lesson in order to protect the customer from the sub-prime mortgagecrisis if it’s happen again in the future. It is including disclosures by lenders for consumers tomake informed decisions, prohibition of a abusive practice by rules, offering of principles basedguidance together with supervisor oversight and taking less formal steps whereby working withindustry participants to establish and encourage best practices or supporting counseling andfinancial education for potential borrowers. Beside that, new law also has been adopted for the sake of the investor which isthrough Securities and Exchange Commission (SEC) and Commodity Futures TradingCommission (CFTC). There are responsible for monitoring and regulating the market for allderivatives. While, the Office of Credit Rating Agencies have been created to provide oversightand have authority to examine and impose fines when it’s needed. These laws are response fora failure of agencies to assign more appropriate ratings. Beside that, for the credit crunch crisisin order to alleviate the liquidity crunch, Federal Reserve has reduce the discount rate by half apercentage point and lengthened the lending horizon to 30 days. Bank can borrow at theFederal discount window but they are fears to do so because it will show or give a signal thatthere are lack of creditworthiness on the interbank market. But, Fed has lowered the federalfunds rate by half a percentage point. The U.K bank Northern Rock can’t afford to finance theiroperation by interbank market and accept a liquidity support from Bank of England. The crisishas become worse starting November 2007. Fed tends to cut the federal fund rate but was notreach the bank caught in the liquidity crunch. Then, the Term Auction Facility (TAF) has beencreated by the Fed where commercial bank can bid loans against a broad set of collateral andalso for a mortgage- backed securities. Its will help to resuscitate interbank lending.7.0 ConclusionAs a conclusion, in the late 1920s, US were experienced with the Great Depression wherestock market booms. Many countries across the world were finally hit by debt and currencycrises. It also resulted in the collapse of large financial institutions, the bailout of banks bynational governments and decline in stock markets which suffered around the world. Withhigher effect in some countries than others, the Great Recession has affected the whole worldeconomy. Within a month, the assumptions were truth and forced western governments to 22
    • CURRENT ISSUES 2012injected larger sums of capital into their banks to prevent the bank’s collapse. After a period ofhigh oil prices, it’s come to persuaded central banks to keep interest rates high to againstinflation rather than to cut them in anticipation of the financial crisis spreading to the realeconomy. The current economy situation of United States towards the current global financialcrisis that affected entire country in the whole world with the factor of current global financialcrisis, the implication into international financial institution, the effect into International FinancialInstitution and the government give responses towards the current global financial crisis andInternational Financial Institution. The global financial crisis started to show its effects in themiddle of 2007 and into 2008. Since August 2007, financial markets and financial institutions allover the world have been hit by catastrophic developments with existing of problems inperformance of subprime mortgages in the US. Many financial institutions began to be affected,particularly those with large exposures to subprime-related structured products, leading to aseries of failures of several large US financial institutions. The financial institution crisis hit itspeak in September and October 2008. Sharp decline in the market value of US financial assetsand a general failure of most valuation models in a widespread banking panic could indeedthreaten the Bretton Woods II or any other international monetary system. The global financialcrisis has impacted International Development Association (IDA) eligible countries across theworld and has prompted a strong response from the international community. The globalfinancial crisis in US also affected to International Finance Corporate (IFC). Governmentreducing the federal funds rate near to zero levels and printing more money to the crisis. UnitedStates congress also has passes a financial bill namely Dodd-Frank Wall Street Reform andConsumer Protection Act in order to protect the customers from the unfair treatment from thefinancial institution. The Consumer Financial Protection Bureau create the bill to protectcustomer from hidden fees, unfair term and so on. new law also has been adopted for the sakeof the investor which is through Securities and Exchange Commission (SEC) and CommodityFutures Trading Commission (CFTC). There are responsible for monitoring and regulating themarket for all derivatives. While, the Office of Credit Rating Agencies have been created toprovide oversight and have authority to examine and impose fines when it’s needed. for thecredit crunch crisis in order to alleviate the liquidity crunch, Federal Reserve has reduce thediscount rate by half a percentage point and lengthened the lending horizon to 30 days. Bankcan borrow at the Federal discount window but they are fears to do so because it will show orgive a signal that there are lack of creditworthiness on the interbank market. But, Fed haslowered the federal funds rate by half a percentage point. Fed tends to cut the federal fund ratebut was not reach the bank caught in the liquidity crunch. Then, the Term Auction Facility (TAF) 23
    • CURRENT ISSUES 2012has been created by the Fed where commercial bank can bid loans against a broad set ofcollateral and also for a mortgage-backed securities. Its will help to resuscitate interbanklending.8.0 ReferencesAbd Majid, S, M & Kassim, S. (2009). Impact of the 2007 US financial crisis on the emerging equity markets. International Journal of Emerging Markets. Vol 4, Pp 341.357Anderson, B, T. Harr, T. & Tarp, F. (2006). On US politics and IMF lending. European Economic Review. Vol 50, Pp 1843-1862Andrew, M, A. (2009). CYBERNETICS AND SYSTEM ON THE WEB: The Financial Crisis. Kybernetes, Emerald Article. Vol 38, PP 254-256.Bancel, F. & Mittoo, R, U. (2011). Financial flexibility and the impact of the global financial crisis. International Journal of Managerial Finance, Vol 7. Pp 179-216Barth, J. & Jahera, J. (2010). US enacts sweeping financial reform legislation. Journal of Financial Economic Policy. Vol 2, Pp 192-195Bertaut, C,. DeMarco, L.P,. Kamin, S,. & Tryon, R. (2012). ABS Inflows to the United States and the Global Financial Crisis. Journal of International Economics.Christoffersen, P. & Errunza, V. (2000). Towards a global financial architecture: capital mobility and risk management issues. Emerging Markets Review. Vol 1, Pp 3-20Dooley, M., Folkerts-Landau, D. & Garber, P (2008). Will subprime be a twin crisis for the United States? National Bureau of Economic Research. NBER Working Paper no. 13978, April 2008.Dwyer, G,P,. (2009). Lothian, R.J. International and historical dimensions of the financial crisis of 2007 and 2008, Journal of International Money and Finance, Vol.31, pp. 1–9Foo, T, C. (2008). Conceptual lessons on financial strategy following the US sub-prime crisis. The Journal of Risk Finance. Vol 9, Pp 292-302 24
    • CURRENT ISSUES 2012Gentle, C. (2008). How the credit crunch has its roots in the lack of integrated governance and control systems. The Journal of Risk Finance, Vol 9. Pp 206-210Hellwig, M. (2009). Systemic risk in the financial sector: An analysis of the subprime-mortgage financial crisis. De Economist, 157, no. 2, pp. 129-207Hofstede, G. (2009). American culture and the 2008 financial crisis. European Business Review, Vol. 21 No: 4 pp. 307 – 312International Development Association (IDA), November 23, 2009. Proposal for a pilot IDA crisis response window. IDA Resource Mobilization Department (CFPIR).Jobst, A, A. (2006). Asset securitisation as a risk management and funding tool: What small firms need to know. International Journal of Managerial Finance, Vol 32. Pp 731-760Lee, S, S. (2012). The Current and Future Impacts of the 2007-2009 Economic Recession on the Festival and Event Industry. International Journal of Event and Festival Management. Vol 3. Pp 2-2Lewis, S. (2009). Leading through the credit crunch. Industrial and Commercial Training, Emerald Article. Vol 41, Pp 363-367Rapp, W.V. (2009). The Kindleberger-Aliber-Minsky paradigm and the global subprime mortgage meltdown, critical perspectives on international business, Vol. 5 No: 1/2 pp. 85 – 93Shachmurove, Y. (2011). A historical overview of financial crises in the United States, Global Finance Journal, Vol. 22, pp. 217-231Thakor, V, A. (2012). Incentives to innovate and financial crisis. Journal of Financial Economics. Vol 103, Pp 130-148 25