Summary and Synthesis for Topic 5_Crisis in

Globalization: The Global Financial Crisis

The economy has consisting of two sectors: the financial sector and the real sector. The
financial sector consists of financial institutions: commercial banks, investment banks, hedge funds,
brokerage firms, and others. The real sector consists of firms that produce goods and services,
individuals who buy goods and services, and individuals who work for firms among others. The
financial sector plays an important role in the functioning of the economy through intermediation.
Simply put, the financial sector sits between savers and borrowers: it takes funds from savers (for
example, through deposits) and lends them to those who wish to borrow, be they households,
businesses or governments. The financial crisis affected the banking sector by causing banks to lose
money on mortgage defaults, interbank lending to freeze, and credit to consumers and businesses to
dry up.
The financial crisis or global financial crisis, was a severe worldwide economic crisis. It was
the most serious financial crisis since the Great Depression. In a financial crisis, asset prices see a
steep decline in value, businesses and consumers are unable to pay their debts, and financial
institutions experience liquidity shortages. The financial system can and often does positively
influence economic growth but it can also be the barrier to growth. Too much of its development can
create the risk for its effective functioning. It will also contribute to the increased risk of the large-scale
financial crisis. A financial crisis may be limited to banks or spread throughout a single economy, the
economy of a region, or economies worldwide. What are the cause of financial crisis, the collapse of
the housing market fueled by low interest rates, easy credit, insufficient regulation, and toxic subprime
mortgages led to the economic crisis. A major disruption in financial markets characterized by a sharp
decline in asset prices and the failures of many financial and non-financial firms. The financial crisis effect
the global economy experienced its sharpest slowdown since the Great Depression, the policy
response prevented a global depression. Most of the blame is on the mortgage originators or the
lenders. That's because they were responsible for creating these problems. After all, the lenders were
the ones who advanced loans to people with poor credit and a high risk of default.