The Causes Behind the Global Financial Crisis Financial Essay
The current financial crisis plaguing the global economy has systemic elements and affected countries cannot tackle the problem in isolation. An effective response requires combining measures at both national and international levels. Domestic factors certainly played an important role in the financial crises in some countries; It also proposes the establishment of a global licensing and supervision regime for transnational investment funds of systemic relevance, eliminating most shadow banking operators. The catastrophic consequences of the crisis and findings from behavioral finance provide solid support for these proposals. The purpose of this article is to reflect the behavioral biases that led to this global financial crisis. The article briefly presents the real causes of the structural and cyclical factors of the crisis. This process culminated in the current global financial crisis, which is so deep-rooted that even unprecedented interventions by affected governments have so far failed to contain it. In this article we analyze the structural deficiencies in the financial system that contributed to the emergence of the current crisis and discuss the prospects for financial reforms. Ten years ago this week, the collapse of Lehman Brothers became the signaling event of the financial crisis. Its effects, and the recession that followed, on income, wealth, inequality and. Accounting practices are deeply involved in the current financial crisis and in proposals to recapitalize financial institutions and restore the stability of the global financial system. This essay discusses the methodological and theoretical gaps in accounting research that explain our inability to anticipate the crisis and limit our ability to anticipate. , This page of the essay, Download the full version above. A financial crisis occurs when panic or fear of panic affects the overall functioning of the financial system. Metrick and Geithner, 2015. This is characterized by the failure of banks, and/or the sharp decline in credit and trade, and/or the collapse of an exchange. Financial Crisis: A financial crisis is a situation in which the value of financial institutions or assets falls rapidly. A financial crisis is often associated with panic or a run on the banks. The purpose of this article is to present the behavioral biases that led to this global financial crisis. The article briefly presents the real causes of the structural and cyclical factors of the crisis. Only systemic change will produce a different outcome. I propose that there are six root causes of the financial crisis: Leverage. By definition, over-indebtedness is at the heart of all banking crises. The leverage effect goes beyond the balance sheets. Leverage is embedded in off-balance sheet instruments such as derivatives.