Essay on The Financial Crisis Of The 1930s Great Depression

1511 Words Mar 13th, 2016 7 Pages
The 2008 financial crisis is considered by many economists to be the most perilous crisis faced by the modern day world economy since the 1930s Great Depression (Krugman, 2009). The collapse of Lehman brothers, one of the world’s leading investment banks before declaring bankruptcy, in September 2008 almost took down the world’s financial system. Many factors such as U.S. Home ownership policies, poor risk management, irresponsible lending by banks and deregulations of banks were pointed out as major factors that precipitated the financial crisis. The 2008 financial crisis eventually resulted in an inevitable global economic meltdown despite aggressive bailout efforts by the Federal Reserve and Treasury Department to prevent the U.S. economy from plunging (French, Leyshon and Thrift, 2009). In this essay, critical analysis will be made to discuss and measure the extent of contribution by securitisation to the 2008 financial crisis.

Securitisation is widely considered to be the underlying contributing factor to the rapid growth in risky subprime lending which eventually resulted in the 2008 financial crisis due to the high volume of mortgage delinquencies (Friedman, 2011). Securitisation is the process by which a company consolidate its different illiquid financial assets and debts into interest-bearing tradable securities (Gambacorta, Altunbas and Marques-Ibanez, 2009). Banks aggregate similar loans such as mortgages and place them into a fund. These loans will subsequently…

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