Question

Some have argued that there was a “perfect storm” that led to the 2008 financial crisis. List the 5 main contributing factors that happened together that led to the financial crisis (maximum 2 double spaced pages). Note: the 5 factors are: 1-Dot-com bubble and the shift of funds from the technology era to real estate 2-Inflow of foreign capital from developing countries 3-Deregulation (refer to Glass-Steagall Act of 1933 and Gramm-Leach-Bliley Act of 1999 and shadow banking) 4-Financial innovation (CDOs and CDs and subprime mortgages) 5-Financial markets too big to fail.

Answer 1

2. It is assumed that the capital inflow from the developed countries would be invested in the developing countries. It is said that international capital flexibility promotes economic growth and employment opportunities in developing countries. It plays and important role in every national economy, regardless of its level of development. For the developed countries, it is essential to support sustainable development. Inflow of capital can help developing countries in economic development by providing them with essential capital and technology. Capital inflows are required for macroeconomic stability as they affect a wide range of macroeconomic variables such as exchange rates, interest rates, foreign exchange reserves, domestic monetary conditions as well as savings and investments.