Global Financial Crisis

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Global Financial Crisis

The global financial crisis dates back to mid 2007 and it was characterised with the collapse of major financial institutions and stock markets . The crisis led to the foreclosure of key institutions reduction in consumer wealth , and huge financial commitment by government inform of bailouts which affected economic activity . When the global housing bubble collapsed , securities which were tied to the pricing of real estates declined considerably weakening many financial institutions (Sims , 2009 ,

.4 . Increased default rates were

then experienced on subprime as well as adjustable rates mortgages (ARM Attractive loan packaging and a consistent increase in housing prices made people to take difficult mortgages , but an increase in interest rates and a decline of housing prices made refinancing of loans difficult

Investment banks had bonus structures which were cited by many economists as contributing to the crisis (SBS , 2009 . 32 .7 billion pounds paid out in form of bonuses in 2008 on the basis of retaining talent led to widespread public outrage . Managers ' pay corresponded with positive stock performance (Ruzich , Grant , 2009 ,

.63 . However , recent studies by Forbes discovered that the pay of CEOs increased by more than 13 compared to shareholder return . The executive management enjoys non-value-maximising behaviour ' and an example is that of the CEO of Lehman Brothers who earned over 34 million (Lackner , 2009 ,

.215 . Such incentive schemes should be re-evaluated and ploughed back to the firm to safeguard the long-term profitability of the company...