B) What Were Some of the Major Causes of the Recent Global Financial Crisis (Gfc), and What Have Been Some of the Ongoing Economic Impacts, Either Globally or Locally in Singapore, of This Crisis?

In: Business and Management

Submitted By ting123
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A period of economic difficulty that consumers and markets are experiencing world-widely is known as global financial crisis (BusinessDictionary, 2015). It occurs when there is an increase in asymmetric information coming from disruptions in financial system that is interrupting the funds from channelling efficiently between savers and households as well as preventing firms from having productive investment opportunities (Mishkin and Eakins, 2012, pp. 204).

The recent global financial crisis began in the year of 2007 and the intensity increased in the subsequent year. Global financial crisis in 2007 happened as result of a number of factors such as government mandated subprime lending, imprudent mortgage lending, housing bubble, securitization and a few other more factors, which will be discussed.
Causes
The government mandated subprime lending has contributed to the financial crisis by promoting affordable housing under Community Reinvestment Act (CRA) as well as Fannie Mae and Freddie Mac. Through affordable housing, banks were encouraged to participate in imprudent mortgage lending as mandated by the federal in order to help low-income borrowers, which imprudent mortgage lending is another cause that contributed to the global financial crisis (Jickling, 2009). As a result of mortgage lending, low-income families are able to purchase houses that they are not be able to afford to purchase without the policy. The loans require low or no down payments and limited documentation of income are to be produced (Wallison and Pinto, 2009). Due to limited documentation presenting to get loan, asymmetric information existed as the financial institutions providing loans were lack of information about the borrowers.

Housing prices are able to rise to unsustainable levels as a result of the easy money policies being implemented and an increase of people who wants to…...

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