Accomplishments since the 2008 Global Financial Crises

Accomplishments since the 2008 Global Financial Crises Name of Student Institution Affiliation Contents TOC \o "1-3" \h \z \u Accomplishments since the 2008 Global Financial Crises PAGEREF _Toc1729069 \h 4Introduction PAGEREF _Toc1729070 \h 4Corrective measures PAGEREF _Toc1729071 \h 6Short-Term Global Responses PAGEREF _Toc1729072 \h 6The Role of IMF in Global Surveillance and Management PAGEREF _Toc1729073 \h 9Base III PAGEREF _Toc1729074 \h 10Reforming OTC Derivatives PAGEREF _Toc1729075 \h 11Conclusion PAGEREF _Toc1729076 \h 13 Abstract The ramifications of the 2008 global financial crisis were felt globally. The crisis nearly destroyed the credit mechanism following the loss of confidence in the financial markets as well as the deterioration of the risk appetite. The global financial crisis marked the start of severe financial instability and economic meltdown with costly economic consequences such as loss employment, loss of houses and complete disorientation of the prospects of families globally. Numerous achievements have been made to restore the global economy and avert a possible crisis in the future. Such improvements ranged from fixing the loose monetary policy and overall advancement of the macroeconomic environment, prompting the attainment of market stability and enhancing the structural repair to prevent future crises. Deliberate commitments and policies’ implementation on a global scale continues to strengthen the global economy, increase resistance to crises and increases safety globally. The EU Banking Union and Basel III, although not fully implemented standout as the best-implemented policies and regulatory initiatives in the post-2008 global financial crisis. Additional notable long-term achievement is the reforms on the OTC derivative trading except for the complex cross-border and market differences. Accomplishments since the 2008 Global Financial Crises Introduction The ramifications of the 2008 global financial crisis were felt globally. The crisis nearly destroyed the credit mechanism following the loss of confidence in the financial markets as well as the deterioration of the risk appetite. The global financial crisis marked the start of severe financial instability and economic meltdown with costly economic consequences such as loss employment, loss of houses and complete disorientation of the prospects of families globally. The crisis took policymakers and financial markets alike at a surprise without anyone anticipating such devastation was to happen. The unanticipated collapse of global markets reinforced that no economy is immune from financial crises and adequate preparation need to be put in place. The impacts of the 2008 global financial crisis shocked the expectations of both the academics and economic practitioners. Krugman (2009) noted that the aftermath of the crisis led to the collapse of “the whole intellectual edifice” of financial supervision (p. 5). The adverse consequences of the global markets collapse called for urgent and dynamic changes in the regulatory frameworks of financial and securities markets as well as entirely changing how economics has always been taught (Shiller, 2010). Helleiner (2011) notes that the global financial crisis of 2008 was the most catastrophic since the 1930s Great Depression. The crisis led to the collapse of international trade severe than similar collapse experienced in the 1930s. Majority of economists and policymakers never saw it coming while others were dead wrong on their predictions. Effective policies have so far been put in place to prevent such an occurrence on the future. Roubini and Mihm (2010) postulated that the unfolding events leading to the crisis happened in several stages that often went unnoticed. First was the bursting of the housing bubble and the increased mortgage default rate in the United States. The surge in the mortgage defaults as well as other financial assets tied to these mortgages mainly affected the stability of financial institutions. The crisis was primarily as a result of market failures that contributed to the excessive risk-taking and a financial bubble during the years leading to the crisis, notably between 2003 and 2007 (Helleiner, 2011). Failures in past regulation and developments leading to the crisis required a total overhaul to avert the crisis. Numerous achievements have been made to restore the global economy and avert a possible crisis in the future. Such improvements ranged from fixing the loose monetary policy and overall growth of the macroeconomic environment, prompting the attainment of market stability and enhancing the structural repair to prevent future crises. The sub-prime mortgage sector in the USA was the tip of the iceberg. Long and excessively loose monetary policies in the developed countries in early 2000 contributed to the persistence of large global imbalances which in turn fueled the crisis (Taylor, 2008). The massive global imbalances can be ascribed to the increasing deficit in the US’ current account and the significant surplus in China, Middles East and Russia (Lane, 2009). Portes (2009) also contend that the global macroeconomic imbalances of the major developed nations were fundamentally to blame for the crisis. Only by understanding these causes can we know the policies adopted to restore global economies to stability. Governments and policymakers globally initiated several activities that aimed at addressing the effects of the crisis as well as stopping it from happening in the future. Corrective measures and policies put in place included financial rescue plans, adopting various monetary policies and launching of multiple public stimulus packages and programs to pull the economy out of the recession. This paper examines multiple response policies implemented and the achievements that have been recorded since the crisis. Corrective measures Governments, policy makers and central banks globally took multiple corrective actions that sought to improve their economies and rectify the recession into a working financial and securities markets. Correctional measures included both short term and long policies that aimed at attaining specific economic achievements such as: implementing fundamental institutional changes, critical evaluation of risk, and control of interest rates and checking the macro-imbalances such as excessive asset prices and expanded current account deficits. Short-Term Global Responses The world experienced unprecedented policy responses from the US Federal Reserve and other central banks global aiming to avoid the imminent deflationary spiral that resulted to increased unemployment rates, lowering of wages and eventually leading to a worldwide reduction in consumption. The emergency and short-term responses involved the following (Vines, 2009): * Reducing the interest rates too low and near-zero levels with the intention of discouraging savings and promoting borrowing and investments. * Quantitative easing which involved floating long-term government paper and private sector bonds thus ensuring that long-term interest rates decline and align with the short-term interest rates. * Recapitalization of the financial system that prevented highly leveraged financial institutions from reducing their lending. The intervention by the US and European governments through their actions such as bailouts of the financial systems promoted the recapitalization of the financial system. * Multiple countries including the US, Japan, UK, Germany, Australia, and China also adopted fiscal expansion policies that were also similarly supported by the IMF. The US Federal Bank as other banks extended their traditional role as the lender-of-last-resort to advance new and enhanced credit facilities that improved their liquidity access status. Fleming (2012) noted that the increased liquidity access coupled with reduced interest rates prompted borrowing and decreased the appetite for savings. The US Federal Bank, European, UK and other central banks globally purchased US$2.5 trillion worth of government debts and other assets from banks, the most substantial capital injection and the most ambitious monetary action ever (Langley, 2014). Financial rescue plans aimed at to save the banks and insurance companies from bankruptcy thus preventing additional fiscal deterioration. The significance of the government role in bailouts has been a matter of controversy regarding its effectiveness to date (Wafa, 2010). Singh and Bruning (2011) note that the US executed two stimulus packages valued to an estimated US$ 1 trillion in a bid to offset the reduced private sector demand in 2008 and 2009 after the crisis. It is inducing public stimulus packages aimed at increasing federal spending on infrastructural projects that would result in increased employment rates and stabilization of consumer spending. Actions taken by one government would affect the efforts of other countries thus indicating the significance of international cooperation in global financial reconstruction. The G20 summit emphasized on the need for increased international collaboration that would address the need to reduce stimulus as a means of safeguarding the government’s fiscal position; reduce deficits and reverse the accumulation of public debt that was in the rise (Visco, 2010). Long-term measures and policies aimed at creating systems that would identify the growth of market bubbles earlier in advance and ensure that banks are more conscious in their operations to safeguard the stability of the global economy. Long-term responses to the global crisis involved resolving the global imbalances and the asymmetric savings-investment gap. Low-interest rates needed to be maintained not just in the short-run but also in the long-run as well as ensuring fiscal expansion and bailout of the financial sector to prevent collapse and bankruptcies of businesses. Both economic and political initiatives from the major world economies took shape to initiate long-term measures that ensured that such a crisis never happens in the future. The G20 agenda was critical in establishing effective cooperation in the actions between various nations. Šoškić (2015) notes that seven elements were identified as essential responsibilities to ensure enhanced supervisory and international participation in preventing future crises. These elements include: * Identifying and assessing problems in the global financial system * Undertaking joint st...