Various reasons have been suggested for the crisis, with experts from placing weights on specific issues. Fed Chairman Ben Bernanke summed up as follows during the crisis in January 2009 speech: “Almost eighteen years the global financial system is under extraordinary stress-stress, which is now finally spilled into the global economy more generally. The earliest was the cause of the crisis was the housing cycle in the U.S. and the associated increase in delinquencies on sub mortgages, which are subject to significant losses at many financial institutions and shook investor confidence in credit markets. But even if sub debacle triggered a crisis of development in the U.S. mortgage market were just one aspect of a much larger including credit boom whose effects transcend the mortgage market will affect many other forms of credit. aspects of the broader credit boom included large decreases in standards for the accident in the supervision of lending investors and rating agencies, increased dependence on complex and opaque credit instruments, which proved fragility of stress and compensate for the exceptionally low risk appetite. sharp end of the credit boom has extensive financial and economic consequences. financial institutions have seen their capital losses and depreciation depleted and their balance sheets clogged with complex credit products and other illiquid assets of unknown value . Rising credit risk and intense risk aversion pushed credit spreads at an unprecedented level of securitized assets and markets, with the exception of mortgage securities guaranteed by the State, which closed. increased systemic risks asset values and tighter credit has once again taken heavy toll on business and consumer confidence and precipitated a sharp slowdown in global economic activity. detriment in terms of lost output, lost jobs and lost wealth that has already been significant. “[11]
In its “Declaration of the summit on the financial markets and world economy” of 15 November 2008, 20 leaders of the group cited the following reasons:
During the period of strong global growth, rising capital flows and long-term stability at the beginning of this decade, market seeking higher returns without adequate risk assessment and can not exercise proper due diligence. At the same weak standards unhealthy risk management practices, increasingly complex and opaque financial products, and as a result of excessive leverage combined to create weaknesses in the system. Policy makers, legislators and regulators in some developed countries were not sufficiently appreciate the risks and solutions, based on the financial markets keep pace with financial innovation, and should take into account the systemic consequences of legislative action. [12]
In a few months before September 2008, many business magazines published comments warning on financial stability and risk management procedures, leading U.S. and European investment banks, insurance companies and mortgage banks in connection with sub mortgage crisis. [13] [14] [15] [16]
Since the errors caused by poor risk management for bad debt, debt securities and insurance fraud, the major financial institutions in the U.S. and Europe face a credit crisis and downturn in economic activity. [17] [18] the crisis quickly developed and spread to global economic shocks, which failed in a number of European banks, stocks fell in various indices and a large decline in market shares [19] and raw materials. [13] In addition to the reinforcement of financial institutions to further accelerate the liquidity crisis caused a decline in international trade. The world’s political leaders, the national finance ministers and central bank heads coordinated effort [20] to reduce the fear, but the crisis continues. In late October the currency crisis developed, with huge capital investors transfer funds to a stronger currency, such as taste, dollar and Swiss franc, resulting in many emerging economies to seek assistance from the International Monetary Fund
