Financial Management And Financial Crisis - 1404 Words

Since the financial crisis is the value of financial institutions or assets in one country or several countries drops rapidly, and it can affect the stability and development of the relevant country or region even the world economic. The causes of this situation should be well studied to prevent the recurrence. This essay is discuss if the financial crisis that was globally experienced following events in 2008 is an example which can prove the financial engineering and corporate governance gone wrong and try to explain the reason. The financial crisis can be also called financial storm. The nearest global financial crisis was started from 2007, evolved by the US Subprime mortgage crisis. The Subprime mortgage crisis is also known as†¦show more content†¦The essential cause of subprime lending problem and the payment crisis is the decline of the housing price which leaded to the solvency of the subprime loans borrowers decline. For this reason, the deep problem behind the Subprime mortgage crisis is the housing market correction in the US. The Federal Reserve used the loose monetary policy to cut interest rate. The strong growth in the global economy and the pursuits of high returns, lead to the preference for risk between the global investors increased. As the easy access to loans, it was contributed to the growth of the housing market. In the environment of house prices rose and low interest rate, the weakly risk awareness of both lenders and borrowers were increasing, which leaded to the rapid growt h of subprime mortgages in the US. By the reason that the US interest rate hiked, the real estate prices began to fall at 2006. (Simkovic, n.d.) The delinquency rate of mortgage increased significantly, the number of people who were unable to pay off the house is increased. Once the mortgage is cleared, it is resulting in credit losses eventually. Different from all the past real estate market fluctuation, this Subprime mortgage crisis caused the re-pricing of entire stock market, especially the derivative products, and this brought great uncertainty to the subprime market. The investors were difficult to assess the value of the product and risk directly. At the same time,