Need help with my writing homework on Does the Credit Crunch Signal the End, or the Beginning, of Globalisation. Write a 1750 word paper answering; The collapse of various international banking institutions, insurance firms, and other companies has led to a virtual meltdown of various other sectors. This includes unemployment, loss of homes, and consumer power leading to a global recession as governments instigate diverse financial stimulus packages in efforts to revive or resuscitate their depressed economies. Turner (2008), argues that the existing financial downturn indicates a crisis in globalization which undermines the tenets of the free-market economic model. Many countries facing enormous economic challenges are considering reverting to protectionist fiscal measures to cushion their domestic firms from the international trade while others in the more stable Asian countries are prospecting expanding their investments to their vulnerable developed countries.
The credit crunch crisis has been attributed to overconsumption in the developed countries especially the US and Britain using uncontrolled non-collateralised credit which they wantonly overspent. Poorly supervised mortgages were taken by consumers while the financial institutions recklessly lent out funds they didn’t have. These banks were mere speculators in the volatile secondary market rather than relying on savings backed cash to trade with. The financial instrument assiduously accredited with pricking the credit bubble was the flawed financial products known as collateralized debt obligations (CDOs) used by banks to trade toxic debts to other banks that purchased them as valid investments and then lending more to the unfettered borrowers. These CDOs were bought by many leading banks but eventually collapsed bringing down many reputable financial institutions and almost bankrupting some countries like Iceland. In Britain, the borrowers amassed a massive £1.4 trillion pounds debt and in America, over 60 percent of homes were repossessed due to high default rates. According to Morris (2008), the credit crunch was caused by a quarter-century of unabated excessive investment banking manipulation of hedge funds and private equity which encouraged asset-stripping leading in a shadowy banking system. .