Causes Of The Global Financial Crisis

Introduction:

The financial crises of 2007-2008 and also knows as the Global Financial Crisis, is considered to have been the worst financial crisis since the Great Depression back in the 1930’s. The Global Financial Crisis affected a lot of large companies, financial institutions, banks, central banks, insurers, and many more entities around the world and many of these entities declared bankruptcy and went out of business while some where absorbed by other financial institutions, some also converted into financial holding companies. The main cause of the Global Financial Crisis was the United States housing bubble, which caused the value of securities tied to U.S real state pricing to fall down which damaged financial institutions globally.

The business grew and two years later, Mr.Starr formed a life insurance operation and it was doing so well it opened branches throughout China and South Asia including the Philippines, Indonesia and Malaysia. Mr.Starr opened his first office in the United States in 1926, American International Underwrites Corporation “AIU”. Furthermore, he also focused on many other places including Latin America, in the late 1930’s, AIU was available in Havana, Cuba. Mr.Starr moved his headquarters from Shanghai, China to New York City in 1939. After World War II, AIU entered Germany and Japan to provide insurance for American military personel. American International Underwriters continued to expand throughout the late 1940’s and early 1950’s in Europe, with offices opening in the United Kingdom, Italy and France. Mr.Starr began focusing on the American market in 1952. By the end of the 1950’s Cornelius Vander Starr’s general and life insurance included an extensive network of agents and offices in over 75 countries. American International Group “AIG” was incorporated as a unifying umbrella organisation for most of Starr’s general and life insurance businesses in 1967, in 1969, the company went public. Furthermore, operations in the Middle East and Asia were curtailed or ceased altogether due to the changes in political landscape in the 1970’s which presented many challenges for AIG, but, AIG

The Federal Government gave American International Group a bailout of $85 billion dollars, the United States government took almost 80% of the firms equity. AIG Financial Products devision has been selling insurance against investments gone wrong for years, for example, selling protection against interest rate changes or other unknown economic problems that occur. But AIG discovered a new way to make money in the late 1990’s. AIG found a new financial tool, a financial tool known as a collateralized dept obligation (CDO), it became prevalent among large institutions and large investment banks. CDO’s contain many types of debt from the very safe debt to the very risky, and collected into one bundle. So, AIG decided to insure CDO’s against default thru a financial product better known as credit default swap. The CDO insurance plan was very successful, the divisions revenues went up from $737 million dollars to about over $3 billion dollars, almost 17.5% of the entire company’s total. A large chunk of the insured CDO’s came in the form of bundled mortgages with the lowest rated tranches including subprime loans. AIG thought that what it insured would never have to be covered, and if it did, it would be in little amounts. But when foreclosures increased to incredibly high levels, AIG had to pay what it promised to cover which eventually caused a huge hit to AIG’s revenue stream. The AIG