European Financial Crisis

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Short paper report of EBE:

“European Financial Crisis”

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Rob van persie
IBMS PT
2009

Preface

This report has been written as an assignment for IBMS student. I have chosen to research European financial crisis; which has underlined the difficulty of taking concerned action in Europe because its economies are far integrated than governing structures. My research was focused the world crisis but especially the financial crisis between European countries and the inconvenient for the rest of the world. Working on this report develops our knowledge about financial markets and business environment itself. It was challenging and interesting project. And also because, Mr. Rene van der Linden gave us the opportunity to implement every subject of his classes during the time we were given. As economics, it is very dynamic subject, and the requirements of this report are similar, it made this report making an exciting experience.

Table of contents

• Preface

• Introduction

• The research of questions:?

• Conclusion and recommendations

• Appendices

Introduction

The world has been and still in financial crisis which now has turned not only to economic crisis but also to social crisis. The global crisis economic crisis is affecting families and communities across the planet. Restoring stability, confidence and growth is the priority of different groups and associations, which are working with the worlds, governments (G20) to get economies moving again.

Since 2007-2009, the financial crisis is often referred to as "the credit crunch" or "credit crisis", began in July 2007 when a loss of confidence by investors in the value of guaranteed mortgages resulted in a liquidity crisis that prompted a substantial injection of capital into financial markets by like the United States Federal Reserve (FED), Bank of England and the European Central Bank (ECB).

And September 2008, the crisis deepened, as stock markets world-wide crashed and entered a period of high volatility, and a considerable number of banks, mortgage lenders and insurance companies failed in the following weeks, period.

Further, we are going to see different methods and recommendations we can use, or give to tackle this crisis.

The research of the questions:?

Now, there are so many research and questions we can ask: what are the causes of the crisis? Who is affected, and finally, what is the European Union can do to tackle this crisis?

The main causes of the crisis are that many years ago, mortgage lenders were happy to lend money to people who couldn’t afford their mortgage. It was an easy credit conditions. But they did it anyway there was nothing to lose. These lenders were able to charge higher interest rates and make more on sub-prime loans. If the borrows defaults, they simply seized the house and put it back on the market. On the top of that, they were able to pass the risk off to mortgage insurer or package these mortgages as mortgage-backed securities.

In general and especially in USA, the whole thing was one big scheme. Everything was great when houses were selling like piece of cakes and their values go up every month. Lenders made it easier to borrow money, and the higher demand drove up house values. Higher house values means that lenders could lend out even bigger mortgages, and it also gave lenders some protection against foreclosures. All of this translates into more money for the lenders, insurers, and investors. Unfortunately, many borrowers got slammed when their adjustable mortgage finally adjusted. When too many of them couldn’t afford to make their payments, it causes these lenders to suffer from liquidity issue and to sit on more foreclosures than they could sell. Therefore, mortgage-backed securities became more risky and worth less, causing investment firms, for example: Lehman Brothers. In EU, some economics said that fixing this crisis in Europe will be...
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