The Recent and Current Global Financial Crisis Essay - 1

The Recent and Current Global Financial Crisis - Essay Example This view has recently been confirmed by an IMF report (2011), that financial crises usually follow "credit or asset price bubbles" (IMF, p. 6). Moshirian (2010) has found that the inability of national regulatory bodies to respond adequately to a global market that has become increasingly interdependent has left these bodies unable to control regulatory arbitrage and the international movement of toxic assets (p. 504). In a way of confirming these last two perspectives Longstaff (2008) has found that lower movements in the ABX Index of credit-default swaps did cause financial contagion in other financial markets. This report will show how in the US, deregulation did serve to encourage market liquidity that could have advantaged banks and homeowners. The report will explain how the lack of appropriate regulation in the financial markets led to both a real estate bubble and the global financial crisis that reached the UK and world markets. Â  Since the Great Depression, the American government has initiated programs that encouraged homeownership for the average citizen while at the same time promoting and ensuring savings, as assets in banking institutions, that could be used to pay for mortgages. Following World War II there occurred several rounds of deregulation policy expressed through the passage of US federal acts that eventually, though not intentionally, allowed banks to collateralize the assets and to use them, as investment banks, to participate directly in the secondary financial markets. Deregulation was originally intended to finance supply with more liquidity of resources in order to meet an increasing demand in the real estate market.