Important Global Financial Issues

18 July, 2012

Why knowledge of global financial issues is important

If you feel that you are living in some remote corner of the world and hence, happenings in the global financial market will not impact you, then you could be mistaken. This is because whether we like it or not, we are living in a global economy and happenings in some remote corners of the world are bound to have their cascading affect on your small little town and the country in which you live in.

While, in some cases, the impact could be minimal, there are situations when major problems in some countries of the world could have a big impact in your day-to-day life. A simple example is oil and energy. Whether you like it or not, any turmoil in the Gulf countries is bound to make the oil rate per barrel shoot up and this, in turn, will certainly have a cascading impact on your daily life and your overall standard of living.

So, while globalization has its own advantages and benefits, it also comes with a lot of challenges and pitfalls on the way. The recent 2008 economic disaster is something that shook the entire world, the ripples of which are being felt even today. It would be interesting to have a closer look at the reasons which caused this financial mayhem in the first place.

Global financial mess and sub-prime mortgage

The whole crux of the 2008 financial disaster could be attributed to the greed and unbridled risks taken by a few corporate banks in their quest to build asset portfolios, left, right and center. However, the whole problem of sub-prime mortgage did not happen one fine morning. This was a buildup of a number of wrong acts or at times even willful steps taken by some greedy banks and individuals with a tendency to borrow from personal loans and loans for businesses despite being unable to return.

If you trace back to some articles written on the financial situation prior to this 2008 crisis, you are sure to come across a number of articles written by scholars warning about a bubble that is soon going to burst. However, not many people paid heed to it and the results are there for all to see.

The financial mess and the timelines

If you closely monitor the time lines which lead to the collapse of the financial and banking market in 2008, you will certainly realize that it did not happen all of a sudden. The decision to nationalize Freddy Mac and Fannie Mae on 7th September 2008 was the first sign that things were not normal and there was a storm brewing.

The next major blow came when the Federal Bank refused to bail out Lehman Brother on 14th which led to Lehman filing for bankruptcy. This opened the floodgates and the mayhem that followed was there for all to see. The purchase of Bank of America by Merrill Lynch and the $85 billion dollar bailout package given to AIG confirmed that America and world was well and truly struck by a financial tsunami.

The way forward

The biggest lesson that we have learnt from this major financial crisis is that greed at its worst form is the main reason for this disaster. Another lesson that we have learnt is that while the poor are certain to be the biggest hit, the slowly vanishing tribe of middle class people is indeed a matter of great concern. Most of the middle class have been squeezed and have found themselves in the bottom of the pyramid, while the rich continue to grow richer.

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