Financial crisis
The worsening global financial crisis has started in US and it is expected the impact would be worldwide since the US economy is the largest one in the world and it has the weight to impact the world economy. Although there was no major impact in rest of the countries initially, in spite of the links to the US economy, there could be some effects felt later as the economy is not completely insulated. Any negative news from the US directly impacts investor sentiments the world over.
The roots of the US crisis go deep into the housing bubble burst. Banks and institutions were encouraged and motivated to give loans at very liberal terms and conditions. In some cases, smaller banks gave loans without checking the financial capability of the borrower to repay. When the housing bubble burst, the prices of properties went down sharply. Consumer confidence was dented due to loss of wealth and hence consumer spending decreased. This started a recession in the economy
Many borrowers started defaulting on their loans and the loan insurance companies could not bear the burden. This started the series of losses reported by many financial organizations. The losses were so huge that some of them ended up in filing for bankruptcy.
Economies across Europe are already suffering. The real estate sector in Spain and Britain is crumbling, Germany's industrial export machine is losing steam, and unemployment in France is rising fast. Major Banks and financial institutions around the world reported losses following the US subprime.The ability of corporation to obtain funds through the insurance of commercial paper were affected. The four European leaders also said they would consider ways to amend some accounting standards -- such as the mark-to-market rule -- which have pushed several banks into uncontrolled, downward spirals
The liquidity concern drove central banks around the world to intervene by bailing out defaulting financial corporations, and taking some monetary measures like interest rate cut and redemption of cash reserve ratio.
.India cannot remain untouched by the financial global crisis, this was the warning made by none other than Prime Minister Manmohan Singh who says India and China have to lead the way in finding a solution
“Our value markets are opened to the world and, if they are affected, this will affect our capacity to finance our development. If the financial crisis causes recession in the main economies this will compromise our exports,” he said.
Though the US government sanctioned the bailed out package of $700billion,it is not able to come out of the recession and impacting economic conditions globally.
