Global Financial Crisis

Global Financial Crisis
Crisis in finance that covered the whole word or the Global Financial Crisis, GFC began around the year 2007. The cause of the crisis was believed to be because of the faith that the investors in the value of mortgages and consequence leading to liquidity crisis (Singh, 2016). The effect led to the Federal Bank of US injecting huge sums of capital into the financial markets. By September 2008, the crisis had grown worse all over the world since stock markets crashed and in consequently becoming volatile. The confidence from the consumers also faded away as each and every person had a fear of the unknown.
Causes of global financial crisis
First, the fall of the Lehman Brothers global bank in the year 2008 almost led to the fall of the financial system of the world. The taxpayers had to go deep down into their pockets in order solve the situation. The financiers such as the Anglo-Saxon who believed who at first had a belief of having the solution in solving the risk, at lost did not succeed (Singh, 2016). On the same note, the central bankers and other financial regulators also had to carry the blames since they tolerated the folly. In Asia also, through its saving philosophy, led to the drop in the global interests (Dermine, 2013). Other findings also reveal that some banks from Europe made a lot of borrowings of the American money before the occurrence of the crisis and decided to utilize the funds in the purchase of dodgy securities. All these factors resulted in what was to be the huge debt in a world that was initially less risky at all.

Impacts of GFC on the financial markets and global economies
The effects of the GFC impacted heavily on the developing countries despite taking some time to be felt. Each country experienced several and also varied challenges (Singh, 2016). The much closer the developing countries had ties with the global economy, the worse the effects they felt. As at present, the incipient recovery is becoming visible with time where it is only becoming restricted to small countries and regions.
The transmission of the global financial crisis was primarily due to trade and financial flows that were forcing many people back to their poverty status quo. The instance led to the hindrance of the realizing the Millennium Development Goals in several countries (Singh, 2016). Most developing countries did not or do not have the necessary resources that can spur the economic growth and provision of safety of the people who are disadvantaged in the society the sane it is done in highly industrialized countries (Davies, 2010). Contrarily, most countries have come up with recognizable efforts that have the opportunity of mitigating these effects. One of them is the increment in their cooperation with each other and also demands that they seek in having a say in matters concerned with the global economy. Meanwhile, the industrialized countries are only concentrating on their problems. For example, their willingness to offer wide coverage of aid is today limited (Dermine, 2013). At the same time, they face pressure from the international bodies who urge to them to slow down in their initial dominance as a way favoring the increasing upcoming strong countries. Power change and the existing influence earlier just before the financial crisis took place were also continuing to worsen all the time.
Consequences of financial crisis on the GCC region
GCC countries recorded stellar performance in the period of 2003 to 2008 though the boom also came with its challenges. Economic activity that looked buoyant on its own, an increment in the confidence among the investors and consumers and also the availability of liquidity led to the excessive growth in the credit, inflation effects and rose in the prices of assets. On top of this, some countries (Davies, 2010), banking institutions reliance on the foreign aid and the exposure towards the real estate, construction lending plus also the equity market resulted into the vulnerability on the balance sheet. In consequence, it resulted into the slowing down in the growth of the economy and decrease in the price of the assets (Dermine, 2013). In the sector of corporations, the boom shared a relationship with cases of high leverages that also were the factors that accelerated the rise in the vulnerability of the sector about cost and financial availabilities.
In the midst of the year 2008, the finances of the GCC government and their external positions experienced direct effect due to the decrease in the prices and demand for oil. Similarly, GCC countries also experienced a reverse in the inflow of the speculative capital between the year 2007 and 2008 (Davies, 2010). The developments here led to the tightening of the conditions of liquidity and in turn affecting the confidence of the investors plus also being further exacerbated by the collapse of the Lehman Brothers in September 2008. Consequentially, the global shortages in liquidity and deleveraging effects erupted. With time, the imbalances within the GCC in their sectors of finance emerged various countries such as Bahrain, Kuwait, and UAE. The cause of these imbalances was due to the fact these countries shared some association with the effects of global equity and credit markets.
Since the authorities with the GCC countries opted to use force, they succeeded in containing the effects of financial crisis. With the objective of offsetting the crisis’ fallout, the governments of the GCC resorted to the maintenance or even the increment in expenses regardless of the sharp drop in the revenues earned on oil. For example, Saudi Arabia decided to adopt the biggest fiscal stimulus as part of a share of GDP among the G-20 (Dutt, 2013). On the same note, the GCC countries came up with the exceptional financial actions such as the capital and liquidity injections. Likewise, in correspondence to the monetary easing that took place in the US in the late periods of the year 2008 and also as a way of creating an ease in the domestic credit environment, the GCC countries with the exception decide to decrease the rates of interests and make it easy their liquidity by directly injecting money into the market (Davies, 2010). The same also included the statutory changes such as the reductions in the reserves conditions and laxity in the prudential loan to deposit ratios.
The global financial crisis resulted in the fall in the prices of assets and swaps in the default credit that went ahead to spread on the sovereign debts. In this regard, the conditions of tighter global liquidities and further slowdowns in the growth of credit and economic activities resulted into deflation of the real estate prices in many countries constituting GCC (Dermine, 2013). Added to the same, the global financial crisis adversely affected the financial institution as much as there was the lack of the systematic consequences. For example, the crisis moderately affected the profitability of the financial institutions and default in the fewer cases of the isolated GCC nonbank financial institutions. Amidst the decline in the profitability of banks, overall, they remained profitable.
The main actions GCC countries have taken to reduce of the global financial crisis
Several steps have been taken by the GCC countries in their bid to address the likely fallout due to the crisis. Major progress has been realized through the restructuring of the debt from the DW and the restructuring of the biggest investment companies with debts in Kuwait. Similarly, central banks within the GCC regions have managed to strengthen their checks and supervisions on the banking sector (Dutt, 2013) and at the same time, most of them are making considerations of carrying out tests that seek to find out on likely vulnerabilities. The Kuwait Central Bank, for example, has begun the process that leads to improvement in framework checks for such purposes. The capital that was available in banks has also got support in many countries due to the subsidy of the private or the public funds or capital. Initially, the nonoil dependent economies had the support of the expansionary fiscal stance. In the sector of banking, the instances a continuation in step taken towards the evaluation of the capital that comes from banks. The reason is that of the reviews did periodically on the quality of assets in relating to the banking sector and the frequent tests on risks that are likely to occur following some step or actions taken.
A priority that is term based is indeed the buttress in the sector of finance minus causing unduly constraints in the credit availability (Dutt, 2013). To handle the developing problems in the faster way, the authorities need undertake a prompt corrective action guideline that entails known criteria in place. In the sector that concerns with does not deal with banking especially in countries such as UAE and Kuwait, the people in power had to proceed with the process of revamping the viable entities. On the same note, they had to ensure that was a smooth transition of an institution deemed to be nonviable.
With regards to the constraints linked with a dollar that is dependent on monetary policy and the sensitive conditions on cycles of liquidity of oil, the policies ended up being effective for the protection of the financial stability and the management of the conditions. All along fiscal stimulus has emerged successful (Dermine, 2013) in the containment of the impact that arises of the global crisis on the growth of nonoil though countries need to come up with the exit strategy from the present high levels of expenditures. The instance here will enhance long-term fiscal sustainability upon their implementation if the conditions permit.
Finally, GCC countries have enhanced corporate governance and transparency. As a way of ensuring and maintenance of the private sector companies in both domestic and financial external financing (Davies, 2010), the incentive structure towards the improvement in the disclosure and governance have also been strengthened. On the same note, the countries have undertaken the improvement in the governance of the state-managed enterprises where major attention has been diverted to the transparency and leverage management and balance sheets.
References
Davies, H. (2010). Global Financial Regulation after the Credit Crisis. Global Policy, 1(2), 185-190. http://dx.doi.org/10.1111/j.1758-5899.2010.00025.xDermine, J. (2013). Bank Regulations after the Global Financial Crisis: Good Intentions and Unintended Evil. European Financial Management, 19(4), 658-674. http://dx.doi.org/10.1111/j.1468-036x.2013.12017.xDutt, A. (2013). The Global Financial Crisis: Views from Asia. Development And Change, 44(1), 175-187. http://dx.doi.org/10.1111/dech.12005Singh, M. (2016). The 2007-08 Financial Crisis In Review.