THE FACTS

The Global Financial Crisis (GFC) is an ongoing economic problem that began with the collapse of the US housing market in July 2007 and extended to financial markets.

A loss of investor confidence in the value of secured mortgages in the US created a liquidity crisis. The US Federal Reserve, the Bank of England and the European Central Bank responded by injecting capital into failing institutions in order to prop the system up and prevent further damage.

The crisis has been a driving factor in the subsequent worldwide economic downturn and recession experienced by many countries.

A byproduct of the response to the crisis is increased public debt in several countries, as governments have had to provide huge sums to prop up struggling industries.

In addition, some currencies have experienced serious devaluation. Particularly hard hit have been currencies in Eastern Europe and Latin America.

THE VIEWS

John Micklethwait, editor of the UK-based magazine The Economist:

“For all the costs of a rescue, the cost of failure to the economy would sometimes be higher. As finance shrinks, credit will be sucked out of the economy and without credit, people cannot buy houses, run businesses or as easily invest in the future.”

Martin Wolf of the Financial Times:

“Is the current crisis a watershed, with market-led globalisation, financial capitalism and western domination on the one side and protectionism, regulation and Asian predominance on the other? Or will historians judge it, instead, as an event caused by fools, signifying little? My own guess is that it will end up in between. It is neither a Great Depression, because the policy response has been so determined, nor capitalism’s 1989.”

And:

“Unfortunately, there are at least three big things we cannot know. How far will exceptional levels of indebtedness and falling net worth generate a sustained increase in the desired household savings of erstwhile high-spending consumers? How long can current fiscal deficits continue before markets demand higher compensation for risk? Can central banks engineer a non-inflationary exit from unconventional policies?”

BREAKING IT DOWN

A) The global economic crisis was primarily brought about by irresponsible financial institutions, which rose to prominence during a period of unbridled capitalism.

In order to ensure a repeat situation does not arise in the future, many countries – in particular the USA – need to seriously tighten their regulatory frameworks.

B) Greed was a key cause of the global financial crisis, but the biggest problem was that those who took the risks did not suffer the consequences when things went wrong.

Instead, it was homeowners and everyday people who suffered the most at the hands of the irresponsible and greedy activities of financial heavyweights. Because of a lack of stringent regulation, institutions were able to constantly forward on debt.

WHAT’S YOUR OPINION?

The GFC represents a series of mostly unprecedented, catastrophic financial events. What can be done to prevent them from recurring in the future?

Even countries that were greatly removed from the hubs of the crisis – the USA and the UK – were significantly affected by it. Do we need to introduce measures to insulate economies?

The US and UK governments bailed out massive companies that were at the coalface of the crisis. Was this a wise move?

Does an international body need to be setup to watch over the biggest international financial institutions?