Global Financial Crisis: The Subprime Mortgage Crisis

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The financial crisis that occurred in 2007 to 2009, likewise known as the Global Financial Crisis or the Subprime Mortgage Crisis, has been considered by many economists to be the world’s worst financial crisis since the Great Depression in the 1930s.
The subprime mortgage crisis started off in the United States and the trigger of the crisis was the bursting of the housing bubble which peaked in around 2005 to 2006. This led to a large decline in home prices that had caused increased levels of mortgage defaults and foreclosures. The growth of such mortgage debts industry was financed with mortgage-backed securities (MBS) and collateralized debt obligations (CDO) which were greatly backed by credit worthy and reputable financial intermediaries.
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With a globalized system, a credit crunch can cause a ripple effect in the entire economy and very quickly turning a global financial crisis into a global economic crisis.
The subprime mortgage crisis led to the failure and closure of large financial institution one of which was the collapse of Lehman Brothers in September 2008. This sent a wave of fears around the world in the financial markets. Large projects were called off, corporate sector stopped borrowing due to high interest rates, trade credit was impossible to attain, with falling demand, particularly for investment goods and manufacturing durables such as automobiles, trade volume collapsed.
The crisis had threatened the collapse of many other large financial institutions but was prevented by the bailout of banks by national governments. Nonetheless stock markets still plummeted worldwide. The downturn in the economic activities hence resulted in evictions, foreclosure of smaller banks and companies and prolonged unemployment
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This clearly reflects the vulnerability of the Singapore economy which is highly dependent on trade, to external conditions and global economic shocks. Due to Singapore’s well regulated market, the exposure of Singapore banks to subprime mortgage is limited. However the recession in is mainly caused by the fall of the non-oil exports in manufactured goods, which was greatly affected by the overall deteriorating economic conditions in U.S. and Europe.
The Singaporean government also set aside US$406.2 million (S$600 million) for training and development of workers to improve its human capital. This had a strong impact on future reemployment and retention of productive workers in the labour market. In addition, the government introduced a US$13.8 billion (S$20.5 billion) resilience package for the 2009 financial year for temporary measures to combat the effects of the financial crisis. The main objective was to help Singaporeans keep their jobs and thus increase overall
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