World Economic Crisis essay

The global economic crisis that occurred in 2007 was majorly caused by the combination of various structural and other factors related to business cycle which conspired to generate a “perfect storm” of grand extents. These factors varied from the fall of the housing market in the U. S. markets, reckless and risky speculation, the imbalances situated between the West and the East in the context of trade deficits, and the autonomous debt crisis that accumulated through years of fiscal extravagance and slack monetary policies (Skeel Jr. One of the most significant issues that was exposed by the Great Recession or rather this global economic crisis is the cracks in the global economy armor as well as the pitfalls associated with too much interconnectedness and integration (Anderson, 1).

This implies that sporadic spells of chaos are the unavoidable result (Anderson, 1). This conclusion comes from the fact that since the beginnings, the financial crises have been a very unfortunate part of the industry. Financiers as well as bankers freely admit in this line of business, which is very huge, extremely complex, and global in scale, it will be naïve for an individual or an institution to think that these events can ever be averted. In the past three decades, the various financial crises that have been experienced is marked with a high rate of commonality in: poor regulatory oversight, dodgy accounting, a sense of infallibility in most cases, herd mentalities and excessive exuberance (Pouliot, 85). In the book “Banker to the World”, which is written by William Rhodes who has literally been in the industry for over five decades and lived through almost all the financial crises of our modern day, comprise of most of these crises.

These nations would in turn have to undergo market reforms in conjunction with the deployment of austerity programmes as a payment done to the IMF. In this case, we can compare the situation with the promise given to a certain institution by a person, who requests to be supplied with bread for a whole year in exchange for labor, only to fall ill at the beginning of the year, but nevertheless continue to consume the bread until the year-end (Sharp, 15). When the time to supply the labor arrives, the individual feels they are not able to meet the requirement, and has to seek aid from an able-bodied friend who in turn has to set certain rules in offering the help. In 1989, the case of the Latin American crisis led to the invention of what is called Brady bonds, which were created to decrease the debt in these nations through the conversion of this debt into different types of bonds (Anderson, 1).

Moreover, the banks were also able to exchange claims they had on the debts in these nations for the tradable assets, which in a way was able to remove the debt from their books of accounts. There are several lessons that can be learned from the financial crises. The main one is that the likelihood of the crisis repeating itself solely depends on the manner in which the markets function. To break this further, we can state that a boom in the economy tends to create an excessive interest, which is normally accompanied by lofty prices. The resultant crash leads to the regulations that have never been seen before, only for the market to be hit by another crisis, which usually comes in shortly after.