Causes of the Global Financial Crisis

Task Description:

Write a 2,500-word essay on the following question.

  1. What caused the GFC, considering both proximate, and longer-term historical factors.

1. What caused the the GFC 

2. What are the proximate factors that contributed.

3. What longer-term historical factors contributed?

In 2007, a burst of the United States housing bubble spread, causing the worst financial crisis that the world had experienced for over six decades. The impacts of the 2007-2008 financial crisis shadowed several countries, following what had been perceived to be an isolated problem in the United States subprime market. The global economy has since then struggled to recover, as well as develop approaches through which such an event can be avoided. Thus, several reports and studies have been developed to determine the underlying causes of the global financial crisis. While most of the factors featured in studies have been collectively agreed upon, there are sharp disparities on other arguments. It is largely concluded that the global financial crisis was caused by an interaction of several factors. Hence, not a single aspect can be primarily attributed to the underlying events (Mishkin, 2010). In this study, securitization, subprime mortgages and deregulation are discussed as the proximate causes of the financial crisis, as reported in studies conducted by Bentley (2015) and Kolm (2015). The aim of this study is to determine the most contributing factors associated with the occurrence and worsening of the 2007-2008 global financial crisis.

Causes of the Global Financial Crisis

The global financial crisis cannot be attributed to a particular cause, but an interaction of several factors in the economic, political and social environment. Merrouche and Nier (2010) explain that elements that are attributed to the crisis are broadly grouped into proximate economic, financial, historical, and contributory factors. The making of the global financial crisis grounds way back before the 2007-2008 events. It is arguably implied that historical developments in the global economy had created a conducive environment for such a crisis to be of massive magnitude. The overall consensus is that the collapse of the housing bubble in the United States triggered economic devastation. However, historical events that promoted deregulation of the finance sector created loopholes for the destruction of the global economic state. Contributing factors are events that accelerated the worsening of the global financial crisis. Contributing factors include unethical practices and the political environment.

Proximate Factors

Deregulation Governments are tasked with the primary role of restoring order in the economy. However, before the 2008 financial crisis, there were numerous efforts to reduce the involvement of the government in the fiscal environment. The banking sector was the first to face deregulation. In the 1960s, a new generation of bankers, whom apparently had not experienced the impacts of the Great Depression sought to compete with other banking institutions in foreign territories (Maddaloni & Peydró, 2010). The culture of aggressiveness, which primarily played a vital role in the 2007-2008 financial crisis was born…

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