The causes that lead to the crisis and discuss how it has affected the Essay

The causes that lead to the crisis and discuss how it has affected the New Zealand pecuniary system and economy - Essay ExampleHowever, even wealthiest governments were forced to declare respective(a) rescue packages in order to bail out and thereby ensure the safety of their financial systems. The decade witnessed a series of collapses in the American banking sector, which were at once attributed to the crisis. The most challenging issue associated with the world(a) crisis was that the institutions responsible for the financial difficulties were the ones being largely bailight-emitting diode out. This paper intends to explore the major causes that led to the crisis and how it affected New Zealands financial system and economy. Facts of the financial crisis Davies (2009) says that the financial crisis widely struck the global financial markets and its first impacts were seen in the United States sub-prime mortgage market. As a go of this crisis, the prices of bonds and other fina ncial assets were considerably declined by which the generated losses largely hit the financial system. In the view of Davies (2009), in this period, number of financial institution underwent bankruptcy mainly due to the collapse in credit this situation adversely affected the economic confidence of business houses/entrepreneurs and thereby the overall economic growing of nations. A gigantic expansion in credit and asset prices just prior to the collapse increased its severity. This adverse credit as well as asset price expansion was more visible in the housing markets of US. Davies (2009) points that the situation of immense global imbalances between corporate giants created huge reserve accumulations. The aftereffects of these accumulations led to the fall of real and nominal interest rates. Naturally, this economic condition produced an environment that offered excess liquidity and very easy credit hence, borrowers began to take advantages of this favorable situation. Subsequen tly, companies too increased their leverage with intent to exploit the situation. In the view of Davies (2009), households got the opportunity to borrow more and more under this economic situation and consequently, the household debt travel to unprecedented levels in relation to GDP. The banks and other financial institution were willing to approve this increased demand for credit and allowed credit even to open and very risky borrowers. Obviously, this massive and thoughtless credit creation hurt the financial stability of the credit sector. Causes of the global financial crisis Prior to the emergence of global financial crisis, it seemed that America had struggled with productivity and competitiveness in the Asian markets. The speculative economy has also notably contributed to this financial turbulence since the relationship of the international coin supply did not commensurate with the actual production of goods. We know that energy consumption significantly increased by the beginning of 21st century. Since the existed reserve levels could not meet the increasing energy requirements, it caused energy crisis. Scholars opine that this energy crisis has also played a vital role intensifying the crisis. Davies (2009) argues that the irresponsible and passive alternate room practices have also contributed to the crisis. Many of the economists are of the opinion that severe feeding problems or food crisis are also factors that fueled the global financial crisis. However, the major cause of the 2007 global economic crisis can be directly