Crisis Financiera 2008

The Global Financial Crisis of 2008

The gap in our economy is between what we have and what webetween what ought to have The gap in our economy is think we we havethat and what we think we problem, not have and that is ais a moral ought toeconomic an economic and moral problem, not an one. one. ~Paul Heyne
~Paul Heyne

Most of the world’s strongest economies are built on credit, which isa great tool when used wisely. It helps start or expand businesses, creates jobs, and satisfy people’s needs. But in the last decade, credit went unchecked in the United States of America, one of the strongest economic agents in the world. This loss of control, triggered a Global Financial Crisis, which resulted in the collapse of financial institutions, government intervention in the financialsector and downturns in stock markets around the world. Moreover, it triggered a chain of global events that contributed to the failure of key businesses resulting in a severe decline in the global economic activity.

The gap in our economy is between what we have and what we think we ought to have and that is a moral problem, not an economic one. ~Paul Heyne

During the past decade, theabsence of regulations between markets generated differences that caused global macroeconomic disequilibrium. This triggered a Global Economic Crisis that stems from a number of factors such as:
An increase in products, services and raw materials prices (like industrial materials such as copper, for which countries like China have a huge demand). A global food crisis (food prices ↑). An energy crisis(oil prices ↑). A high global inflation. A threat of a possible recession. Speculation in the markets. Stagnation of credit. Mortgage credit crunch Confidence crisis in the global markets.

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During the 90s, the US economy experienced constant economic growth due to low interest rates and high confidence levels that fueled investments. Thus, liquidity became abundant. The antecedentsof what would create the cardiac arrest of the entire US financial sector originated during the Clinton administration (and were later followed by the Bush administration): Credit deregularization in the financial sector began to take place.
– These governments wanted the US to become an Ownership Society.

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As a result, financial practices with high risks became common and later triggereda global economic crisis that affected EVERYONE.
– Sub prime loans increased from 47% to 71% in the period 1993-2006. This allowed many high risk US citizens to become house owners through debt. Housing prices skyrocketed due to an increasing demand of buyers (originating a Real state bubble). Debt securitization market became popular and innovative. But it all broke down when the real statebubble bursted.

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Now, let us take a closer look of the situation…

The gap in our economy is between what we have and what we think we ought to have and that is a moral problem, not an economic one. ~Paul Heyne

Deregulation of credit in financial sector.

Debt securitization market became popular.

Rating agencies assigning CDOs AAA ratings.

Predatory lending.

Real StateBubble.

Real State Bubble bursted.

Cardiac arrest of the whole US financial system.

The whole world going down at the same time at the same rate.

Government promoting home ownership. Quality requirements for loans decreased. Line between investment banks and mortgage lenders disappeared.

Efficient way to manage risk. Investment banks used CDOs to make profits. Investors weresatisfied with high return security investments. All of the above allowed the lending industry to increase the number of loans to high risk borrowers.

Rating agencies Fast gave AAA ratings increase of due to conflict of sub-prime interest: loans . a) Agencies´ revenues depended on number of securities rated and not on quality rating. b) Reliance on client information to rate the securities. c)...