The market conditions over the past few years have changed drastically owing to liberalization of economies, globalization and rapid pace in the technology change. The globalization of markets and technology improvements have led to faster access to information, wider reach of markets, and increasing interconnectivity leading to removal of geographical boundaries. These changes have influenced the financial markets across the globe tremendously. Banks and financial institutions have witnessed the emergence of innovative financial products and services that adapt well to changing market and consumer preferences.
The financial markets have also witnessed mushrooming of private operators resulting in increased market competition The current global financial crisis has made a severe impact on all sectors of the economies across the world. The United States sub-prime mortgage crisis has crippled major economic powers causing severe setbacks in economic growth and development. Market prices have soared in the past few months and the financial markets are witnessing one of the most unstable market conditions.
Banks and financial institutions are struggling to survive in such challenging economic conditions. The liquidity crunch has affected the banking sector and financial institutions like Lehman Brothers and Fannie Mae have closed operations as a result. Under such chaotic financial market conditions, the government intervention has played a critical role in restoring a semblance of order. An evaluation of the emergence of the current global financial crisis has led many market experts to believe that this crisis is a result of poor government regulation of banks and financial institutions.
A news article in the Telegraph, United Kingdom observes “The G20 leaders blame banks’ excessive leverage and poor risk management, along with inadequate banking regulation, for the current crisis” (2008). The United States government policies and weak regulatory system is discerned to be the cause behind this global financial turmoil. Inadequate regulation over bank’s lending policies produced an environment of “cheap money and rising asset prices that encouraged speculation” (Telegraph news article, 2008).
Shanta Devrajan, the Chief economist of Africa region at the World Bank claims that “any financial system needs some form of government intervention. The problem with the U. S. is not that there was no government intervention, but that it was flawed. ” Improving the government regulation and control over the financial market is the only solution to resolve this economic crisis. The government needs to take appropriate measures to bail out failing financial institutions and revive the confidence of the financial markets.