Arnigo, Charles James L.

The Contemporary World

EE - 1203

The Global Financial Crisis and the Challenge to Neoliberalism

(Paragraph 4 to 9)

Cheap Housing Loans

- started by the Americans that builds houses beyond the financial capacities of
individuals

- banks sells the mortgage payments as “mortgage-backed securities” (MBS)

I. Effects on Banks

 The demand for MBS increased

 Banks became less discriminating

 Banks extends loans with dubious credit records

II. Thoughts of Financial experts

 Majority would not default if many of the borrowers were the ones who would
struggle to pay

 A few failures would not ruin the entirety of the investments

 Housing prices would continue to increase

 Homes of those who defaulted on their loans could be sold and turn intro a
profit

III. The Crisis in 2007

 Home prices stopped increasing

 Families could not pay off their loans

 Triggered the rapid reselling of MBS

IV. Results of cheap housing loans

 Foreign government, corporations, and individuals loss their money back to the
 countries

 Global multiplier effect set ripples across the world

1. In Iceland, they failed to refinance their loans

2. Iceland’s top commercial banks defaulted and the country’s debt increased
more than seven-fold

3. Spain and Greece are heavily indebted

4. Greece has been forced by Germany and the IMF to cut back on its social
and public spending

5. The continuing economic crisis has sparked a political upheaval in Europe

6. Blends with popular resentment with utter hatred and racism in France

Economic Globalization Today

(Paragraph 1 to 2)

 Global financial crisis can’t no longer be solved by closing national economies to

world trade

 Many countries especially these developing ones are highly dependant on

international trade

Free trade

 Makes national economies grow

a. Free trade in the past

 Advanced nations benefited from it the most

 US, Japan, and the member countries of the European Union make up for the
65 percent of global exports

b. Free trade in the present

 More countries opened up their economies to take advantage of increased free

trade

 Developing countries accounted for 51 percent of global exports

  The share of advanced nations to global exports had gone down to 45 percent

c. Trade liberalization

 Removal or reduction of restrictions or barriers on free exchange of goods

 Altered the dynamics of the global economy