The 2007-2008 Financial Crisis: Causes Impacts and the Need for New Regulations Case Solution

The financial system is at the heart of the free market economy. The 2007-2008 financial crisis has raised concerns that the global financial and economic system could achieve a really major breakdown. New financial instruments have multiplied to the point that it was impossible to calculate the market value of many of them, and it was impossible to know the market value of the institutions that own or guarantee. The initial disaster has happened with subprime U.S. residential mortgage market, but the institutions that had new financial instruments linked to mortgages quickly spread worldwide. Companies that had guaranteed these financial instruments found their net worth was disappearing, raising concerns about the institutions that rely on their guarantees. Meanwhile, new types of hedge funds introduced the risk of greater volatility, and investors are exposed to sudden crises. Many banks have been caught in this web site and suddenly had to get extra to meet regulatory requirements and maintain the confidence of depositors’ capital. Following these events, the liquidity of the financial system has gone. It seems that the recession in the United States was inevitable. Earlier predictions that other economies had become “decoupled” from the U.S. have been replaced by fears that economies around the world continue to the U.S. into recession. Central banks have responded dramatically with attempts to reduce interest rates and increase financial liquidity and the U.S. government to reduce personal taxes through a tax refund program. It was unclear whether the monetary and fiscal policies can avoid a long and deep recession. This is a discussion on the desirability of a variety of new rules that might be able to prevent the recurrence of a financial crisis.
David W. Conklin,
Danielle Cadieux
Source: Ivey Publishing
13 pages.
Release Date: June 9, 2008. Prod #: 908N14-PDF-ENG
The 2007-2008 financial crisis: causes, impacts and the need for new policy solutions Case

The 2007-2008 Financial Crisis: Causes Impacts and the Need for New Regulations Case Solution
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