A critical and thoughtful analysis of the origins of the recent Essay

A critical and thoughtful analysis of the origins of the recent financial crisis - Essay Example concerns were developed regarding the level of security of the financial products provided by financial institutions. Particular emphasis was given on the potential risk of subprime mortgage products offered by most USA banks. However, no measures were introduced for limiting the relevant risk. In this context, the appearance of the crisis in 2007 can be characterized rather as expected; it was just the issue of ‘when’ the crisis was going to appear and not ‘if’ there were chances to occur. The origins of the recent financial crisis are critically discussed in this paper. The literature published on the particular subject is presented aiming to show the different approaches used for the explanation of the crisis as a series of events, which caused severe turbulences to economies worldwide. The potential differences in the arguments used for explaining the crisis reveal the following fact: even after its end, the above crisis has not been fully understood, in all its aspects. The fact that certain theorists set the end of the crisis in 2009 while other estimate the end of the crisis in 2010 is another proof the misunderstanding in regard to the actual forms and the effects of the specific crisis. 2. Origins of the recent financial crisis – critical analysis ... they had managed to mask this risk by giving emphasis on certain characteristics of these products, for example the potential of the customer to choose the number of instalments or the level of interest. In a report published by the World Bank in 2009 it is noted that the origins of the global financial crisis of 2007-2009 can be identified in ‘the economic growth of the years 2003-2007’ (World Bank, 2009, p.94); i.e. the crisis of 2007-2009 is considered to have its roots in the economic decisions of the pre-crisis period, a claim which leads to the assumption that the crisis was unavoidable. In accordance with the above view, the financial crisis of the period 2007-2009 was not related exclusively with the banking practices of 203-2007 but, mostly, with the management of the economics of the state, for example, the investment decisions promoted by the governments worldwide. In the case of Dubai, the continuous increase of investment on construction projects led to the high increase of the relevant debt – referring to the funds used for the completion of these construction projects. It is noted that during the above period, the economic growth reached a percentage of 5% - which was unique since the 1970s (World Bank 2009). However, no measures were taken for protecting economies from potential failures. In fact, the extended use of risky financial products, a result of the radical growth of the above period, has facilitated the increase of leverage. Legislators avoided reacting on time, mostly because the actual risks were not clear. The masking practices, as mentioned above, used by financial institutions helped to hide the risks of leverage and the risk related to the ‘structured financial products’ (World Bank 2009, p.94), extensively used by USA banks