The Tremendous Impact of Global Financial Crisis Essay

The Tremendous Impact of Global Financial Crisis - Essay Example Although the world is yet to recover from the financial crisis, studies show that the main cause emanates from the misunderstanding of its roots (CrÄÆ'ciun & Ochea, 2014). Six years down the line, the effects of the financial crisis are still present as if it was just yesterday. Most of the affected nations, especially in Europe are still grappling with the effect that came along with the crash. Studies show that there were several factors associated with the crash. One of the most recognized causes of the financial crisis was bursting of the US housing bubble. This was due to the laxity in the loan policies, whereby it was quite easy to obtain loans such as mortgage auto and credit card (The Economist, 2013). This, later on, resulted in financial institutions, which had expected a positive income, ending up with huge losses and debts. The decline in the prices also caused homes worth less than mortgage loans to be forced to financial incentives in order to qualify for foreclosure. Studies showed that the crisis was avoidable since the main reasons behind the crash were financial regulation failures by institutions such as banks and governments. Another reason is the dramatic collapse of corporate governance, which was because of the reckless manner in which financial institutions were behaving (Shun, 2013). For instance, financial institutions were involving themselves in risky affairs whereby they would take part in excessive borrowing patterns hence putting the financial system in direct collision with the crisis (Shun, 2013). Apart from financial institutions risky affairs, another reason behind the crisis is ill-preparedness by nations on matters relating to the financial crisis. Key policymakers in most of the affected states never saw the crisis approaching due to the lack of full knowledge of the financial systems.