Abstract:
In August 2007, traders in the international money markets in New York, London and other
prominent financial centers experienced a sudden and dramatic surge in interest rates for
medium-term interbank loans relative to interest rates for overnight interbank loans (Taylor &
Williams, 2008:1). Thus started the Global financial crises, the crisis which started with
house mortgages in the USA soon hit other economies and like a fire in the forest the whole
globe was under it. Even the stronger economies suffered, unemployment reached 86%. The
financial crises was not just an economical problem but started to raise many social issues as
well.
The surge in interbank medium-term rates was the onset of unprecedented deleveraging
throughout the global economy (Taylor, 2009). This paper will look into the factors that
caused the economic global crises of 2007-2009. The results of the crises were devastating to
the economies of the world. The researcher critically analyses the effects and causes of the
economic global crises of 2007-2009. In the end, some recommendation as to what sort of
reforms in the financial system i.e. institutions and regulations can help mitigate such risks.
The findings of the paper will help many economists, researchers and investors apply it to
real life situations. Investors need to know what sort of investments can prove lethal to the
economies.
The main issue is that when bubbles like the real estate, burst then it is not the financial
system that is only damaged. The price setting policy in the real estate was flawed and correct
prices took a longer time to be sought. And it is during the adjustment period that the
struggling economies were still being badly affected.
