2008 International Debt Crisis Responsibility
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What was the 2008 International Debt Crisis, and who was responsible for the crisis? What was the role of central banks, legislative authority, and of government?
Define and explain Monetary Policy and its relationship to Fiscal Policy.
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Solution Summary
The 2008 international debt crisis is examined. Why is responsible for this is determined.
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The International debt crisis of 2008, according to internationalviewpoint.org (2010) was triggered by the speculative real estate bubble in the US which brought about the collapse of several private debt markets (subprimes, ABCP, CDO, LBO, CDS, ARS, etc.). According to this site, while there was a veritable flood of credit up to 2007, various private sources suddenly dried up in the North (Boston, New York, London etc). For example, according to these authors, private banks that were tied up in shaky debt packages began to distrust each other and were hence reluctant to lend money; the authorities of the US, Western Europe, and Japan had to inject huge liquidities on several occasions (hundreds of billions of dollars and Euros) to prevent the North's financial system seizing up. According to this site, during this time, private banks that financed themselves by selling non-guaranteed certificates could no longer find buyers for these on Northern financial markets; they had to clean up their books and write off the huge losses incurred by their risky operations of the previous years. These non-guaranteed certificates came back to haunt them when they subsequently lost all value.
According to internationalviewpoint.org (2010) to keep afloat, these northern financial markets had to call in fresh money in time were acquired by others (Bear Stearns was bought by JP Morgan) or by the state (Northern Rock Bank was nationalized by the British government). According to these authors, some of them did not escape bankruptcy. For example, ...
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