The Financial Crisis in Europe and United States 2007-2010
Remsu, Anna (2011)
Remsu, Anna
Laurea-ammattikorkeakoulu
2011
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Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:amk-2011100713614
https://urn.fi/URN:NBN:fi:amk-2011100713614
Tiivistelmä
This thesis deals with the financial crisis that occurred in the late 2000’s. It focuses on the years 2007-2010 and geographically on the United States and Europe but also takes into account its global effects. The thesis aims to build a comprehensive view on background factors, phases of the crisis and measures taken to resolve the situation. It also aims to construct an understanding of the long-term effects at a national level as well as at an institutional level.
The study has been carried out as a qualitative study. The first part explains how financial markets work, basic principles, institutions and functions of those within the market and tries to explore crises as a phenomenon. The second part is based on news articles, expert interviews, blogs and literature. It focuses on explaining the reasons behind the crisis, effects and central banks activities to ease the situation.
The main results of the study found that liquidity problems within the banks caused an inability to sustain risk management and from there the crisis spread to the whole economy. The main reasons the crisis occurred were low interest rates, imbalances in current accounts and structural problems within the financial market. When interest rates rose the securitizated sub-prime loans defaulted and caused mistrust within the Interbank market complicating funding. Governments tried to intervene by lowering interest rates, offering funding and buying the toxic assets from the banks’ balances.
As a result of the crisis the world economy declined and many governments entered recession. Eventually the crisis spread to the real economy. Ownership and power structures of the world have changed during the turmoil and the governments have been forced to foot the bill. Among other countries the United States’ economy is on the brink of bankruptcy and stimulus packages have already created new bubbles. To avoid future problems the supervision and regulation of financial markets needs to be tightened as well as reducing the use of incentives.
The study has been carried out as a qualitative study. The first part explains how financial markets work, basic principles, institutions and functions of those within the market and tries to explore crises as a phenomenon. The second part is based on news articles, expert interviews, blogs and literature. It focuses on explaining the reasons behind the crisis, effects and central banks activities to ease the situation.
The main results of the study found that liquidity problems within the banks caused an inability to sustain risk management and from there the crisis spread to the whole economy. The main reasons the crisis occurred were low interest rates, imbalances in current accounts and structural problems within the financial market. When interest rates rose the securitizated sub-prime loans defaulted and caused mistrust within the Interbank market complicating funding. Governments tried to intervene by lowering interest rates, offering funding and buying the toxic assets from the banks’ balances.
As a result of the crisis the world economy declined and many governments entered recession. Eventually the crisis spread to the real economy. Ownership and power structures of the world have changed during the turmoil and the governments have been forced to foot the bill. Among other countries the United States’ economy is on the brink of bankruptcy and stimulus packages have already created new bubbles. To avoid future problems the supervision and regulation of financial markets needs to be tightened as well as reducing the use of incentives.