Editing Wikipedia Page Financial Contagion – Assignment Example
Yu Chen Olmsted ECON 241 November Editing Wikipedia page "Financial contagion" The crisis of 2007-2008 has been identified as the most severe since the 1930 Great Depression (Helleiner, 68). Major financial institutions around the world were greatly affected. This crisis is a good illustration of the concept of financial contagion. The history of the 2007/2008 crisis traces back to the bursting of the housing bubble in the United States, and the increase in mortgage defaults. This came about as a result of the mandate by the U.S. Congress for the Federal National Mortgage to increase access to low-income housing (Markowitz, 25). As a result of the high default rates, many financial institutions across the U.S. were affected. Although the U.S. government had attempted to salvage the situation through liquidity doses, the crisis further deepened. By March 2008, Bear Sterns, a U.S. investment bank, required the efforts of the government to be rescued. At this stage, it was clear that the crisis had deepened. Other financial institutions, such as the Lehman bank and American International Group (AIG), started to feel the effects of the crisis (Helleiner, 69). The severity of this crisis grew, and most U.S. and European banks were pulling back their international loans. This move caused major financial problems across the world, especially for those countries that rely heavily on international borrowing. Financial contagion was felt severely especially in countries whose financial systems were vulnerable due to local housing bubbles and current account deficits. Some of the countries affected were Germany, Iceland, Spain, Britain and New Zealand among others (Helleiner, 69). Many analysts and governments had failed to predict the real effects of the crisis. As major economies of the world started to feel the effects of the crisis, nearly every economy was affected directly or indirectly. In particular, there was a drop in exports and lowering of commodity prices. The 2007/2008 crisis is thus a good example of the financial contagion phenomenon.
Helleiner, Eric. “Understanding The 2007–2008 Global Financial Crisis: Lessons For Scholars Of International Political Economy”. Annu. Rev. Polit. Sci. 14.1 (2011): 67-87. Web
Markowitz, Harry. “Proposals Concerning the Current Financial Crisis.” Financial Analysts Journal, (2009) 65(1): 25-27 web < http://www.cfapubs.org/doi/pdf/10.2469/faj.v65.n1.4 >