Causes of recession

Causes of recession

  • Submitted By: bowtell5
  • Date Submitted: 06/16/2014 10:27 AM
  • Category: Business
  • Words: 1661
  • Page: 7

The global financial crisis brought the financial sector into unknown territory. Never before has anyone seen a global recession, which has forced governments to take action in order to protect or save their economy. Countries were experiencing record high balance sheet deficits. In recent years academics have investigated the causes for the global recession, with a considerable amount of research into measures that can prevent the causes from triggering another economic and financial crisis. My speech focuses on regulation and the lack of regulation in the years leading up to the asset bubble bursting

The deregulation of financial institutions around the world was one of the main causes for the global downturn. With governments and regulators changing laws and loosening regulations in the belief that they were making their financial sectors stronger and more competitive. The global regulatory framework put in place over the last decade either failed to prevent, or may even contributed to the global financial downturn, with banks running beyond their means, offering credit to whoever applied no matter how poor the applicants credit rating was. Experts began to believe that many banks have become so strong they could never fail and some have become too big to fail such as Bank of America (US) and Barclays PLC (UK). This was due to the huge line of credit the banks built up with little capital and poor liquidity.

Once the flow of cash began to dry up around the world the financial institutions began to feel the pressure. At first it was believed this was only a blip in an ever-growing market. As many countries soon found out it was the start of the biggest financial crisis of our generation. The popularity of subprime lending had lined up the financial sector for failure. With financial institutions giving credit and using credit as collateral it should have been obvious that there was a potential for global failure. These subprime loans...

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