The financial crisis that hit the globe at the beginning of July in 2007 appears to continue biting and it has far reaching impacts on the world economy. The current financial crisis in the United Kingdom has been associated with three major factors. One of the causes is loose monetary policies. It is said that the emerging of loose monetary policies contributed to the increase of prices of houses in this era. In addition, the crisis contributed to fewer defaults in mortgage and this led to very high prices of loan securities.
High surpluses in current accounts in the growing economy with reduced development in money markets, more so in China, is said to have caused increased flow of finances that drained the rates of interest in the United Kingdom and other economies that are already developed. This came along with reduced rates in savings in United Kingdom which resulted to a financial innovation wave that develop complicated products that attempted to provide increased returns while struggling to maintain values of assets.
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The third cause is lenient financial rules. Increased growth of unbalanced sheet is a big risk and high investments in products which are not well understood have been linked with pre-conditions that led to high deterioration in money markets that emerged at the beginning of the financial hardship (Jackson 2010, p. 12). The liquidity in money market is also seen as a cause of financial crisis. It led to investors trying to seek high returns in the money markets which as a result pushed for the development of complicated financial systems applying leverage to bring high profits for investors. The reduction of lending standards, for instance in the united kingdom, uncontrolled mortgage practices contributed a lot to weak regulations and increased demand by investors.
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