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Lessons learned from the recent Global Crisis

Critically assess the factors that led to the recent Global Economic Crisis and evaluate the economic lessons that have been learned.

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Factors that Led to the Great Recession

The ultimate point of origin of the great financial crisis of 2007-2009 can be traced back to an extremely indebted US economy. The collapse of the real estate market in 2006 was the close point of origin of the crisis. The failure rates of subprime mortgages were the first symptom of a credit boom tuned to bust and of a real estate shock. But large default rates on subprime mortgages cannot account for the severity of the crisis. Rather, low-quality mortgages acted as an accelerant to the fire that spread through the entire financial system. The latter had become fragile as a result of several factors that are unique to this crisis: the transfer of assets from the balance sheets of banks to the markets, the creation of complex and opaque assets, the failure of ratings agencies to properly assess the risk of such assets, and ...

Solution Summary

This solution critically assesses the factors that led to the recent Global Economic Crisis. Lessons learned from it are specified in the discussions.