The Global Finance Crisis Case StudyIntroductionThe inside job was a 2010 documentary film by Charles Ferguson that clearly demonstrated the 2008 crisis. On the other hand, it comprehensively narrated and revealed its causes, key players as well as its consequences. It goes ahead to explain the systemic corruption by key financial players in the finance industry and effects of such corruption in United States of America. Furthermore it reveals that changes in financial as well as other policies and banking practices contributed to the growth of the crisis casing most Americans to lose their savings, their jobs and hard earned homes.Answer One: The Unintended Consequences of Financial InnovationIt has been ascertained that changes in the policy framework governing the financial industry and the banking practices heavily contributed to the financial crisis. The development of complex trade policies such as the derivatives market allowed for large increases in risk taking that circumvented older regulations that were intended to control systemic risk. These derivatives increased instability since their adoption is resulted in large losses because of the use of borrowing. Investors suffered the risk of losing large amounts of investments or savings if the price of the underlying moved against them significantly. Secondly the collapse of the house boom in 2004 caused by the application of collateralized debt obligations and the global economic meltdown resulted in unimaginable imbalance of the ratio of money borrowed by investment banks and its own assets. This caused the value of securities related to real estate to crash down and damage financial institutions internationally as the market for collateralized debt obligations collapsed.. It is these financial innovations such as securitization that prioritize short-term over long-term value creation that triggered the 2008 financial crisis.Answer two: The unintended consequences of regulationThe deliberate shift from a system of regulation to deregulation of the financial industry encouraged unusual business practices which had adverse effects. Great pressure was exerted by the financial industry on the government to thwart efforts of regulating the industry. The government and central bank which have the responsibility of upholding financial stability through proper regulation of the financial markets and its institutions were split which led to insufficient responsibility. This exposed the industry to greater and more complicated risks since the supervisory and regulatory structure failed to keep up with the evolution of the financial markets. Answer three: Explain how the financial crisis of 2008 occurred—who is to blame?The global financial crisis began in the early 2000s and finally climaxed in 2008 and since then its devastating impact still lingers, worldwide. It began when; the financial sector which had consolidated into a few giant firms introduced the use of high risk derivatives. It i ...

1. The Global Finance Crisis Case StudyIntroductionThe inside
job was a 2010 documentary film by Charles Ferguson that
clearly demonstrated the 2008 crisis. On the other hand, it
comprehensively narrated and revealed its causes, key players
as well as its consequences. It goes ahead to explain the
systemic corruption by key financial players in the finance
industry and effects of such corruption in United States of
America. Furthermore it reveals that changes in financial as
well as other policies and banking practices contributed to the
growth of the crisis casing most Americans to lose their
savings, their jobs and hard earned homes.Answer One: The
Unintended Consequences of Financial InnovationIt has been
ascertained that changes in the policy framework governing the
financial industry and the banking practices heavily contributed
to the financial crisis. The development of complex trade
policies such as the derivatives market allowed for large
increases in risk taking that circumvented older regulations that
were intended to control systemic risk. These derivatives
increased instability since their adoption is resulted in large
losses because of the use of borrowing. Investors suffered the
risk of losing large amounts of investments or savings if the
price of the underlying moved against them significantly.
Secondly the collapse of the house boom in 2004 caused by the
application of collateralized debt obligations and the global
economic meltdown resulted in unimaginable imbalance of the
ratio of money borrowed by investment banks and its own
assets. This caused the value of securities related to real estate
to crash down and damage financial institutions internationally
as the market for collateralized debt obligations collapsed.. It is
these financial innovations such as securitization that prioritize
short-term over long-term value creation that triggered the 2008
financial crisis.Answer two: The unintended consequences of
regulationThe deliberate shift from a system of regulation to
deregulation of the financial industry encouraged unusual
business practices which had adverse effects. Great pressure

2. was exerted by the financial industry on the government to
thwart efforts of regulating the industry. The government and
central bank which have the responsibility of upholding
financial stability through proper regulation of the financial
markets and its institutions were split which led to insufficient
responsibility. This exposed the industry to greater and more
complicated risks since the supervisory and regulatory structure
failed to keep up with the evolution of the financial markets.
Answer three: Explain how the financial crisis of 2008
occurred—who is to blame?The global financial crisis began in
the early 2000s and finally climaxed in 2008 and since then its
devastating impact still lingers, worldwide. It began when; the
financial sector which had consolidated into a few giant firms
introduced the use of high risk derivatives. It is during this
period that the subprime mortgage market was unraveled in
U.S.A which resulted in a sharp increase of default rates of such
mortgages which ultimately increased house prices. Investment
banks bundled mortgages with other loans and debts into
collateralized debt obligations most which were backed by
subprime mortgages, which they sold to investors leading to
predatory lending. Moreover, many home owners were given
loans they could never repay. During this boom, the ratio of
money borrowed by an investment bank versus its assets
reached an exceptional point. In 2007 the market for CDOs
(collateralized debt obligations) collapsed and investment banks
were left big loans, CDOs and real estate they could not unload.
Based on the foregoing, it’s clear the rise of the financial crisis
was due to the concerted efforts of many players. These were
key political players, financial institutions, the governments,
financial regulators, academicians and professors who served as
consultants and financial advisers among othersSummary and
ConclusionsDespite efforts to restore stability and equilibrium
to the financial sector in the U.S the underlying system has not
changed. Furthermore the top key players were not dealt with
accordingly rather they were set free to enjoy their billions of
money received from the global economic meltdown.

3. ReferencesGerald P. Dwye. (2011)Financial Innovation and the
Financial Crisis of 2007-2008. Federal Reserve Bank of Atlanta.
University of Carlos III, Madrid and CAMADemyanyk, Yulia,
and Otto Van Hemert. 2011. Understanding the Subprime
Mortgage crisis. Review of Financial Studies24 (6), 1848-
1880Turner, A. 2009. “The financial crisis and the future of
regulation”, the Economist’s Inaugural City Lecture, Financial
Services Authority website,
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Case Study: 2008--What Happened?
For this week’s case study please answer the following
questions (relate your answers to the movie ‘Inside Job’).
Please note, your answer to this question should be in paragraph
form, it should be 5-paragraphs in length, and it should be no
more than a page and a half long. Your paper should be
presented as follows: (a) introduction, (b) answer to question 1,
(c) answer to question 2, (d) answer to question 3, and (e)
summary and conclusions. The questions are as follows:
1) What are the unintended consequences of financial
innovation?
2) What are the unintended consequences of regulation?
3) Explain how the financial crisis of 2008 occurred—who is to
blame?