A recession is a contraction phase of the business cycle. TheInternational Monetary Fund(IMF) terms the global economic growth of 3 percent or less as "equivalent to a global recession". Comprehensively, it can be viewed as a significant slump in economic activity, spread across the globe, puncturing every level of the economy, lasting more than a few months, which is marked by sinking GDPs, real income and employment, and strangled finances.

The global financial crisis of 2007-present, is afinancial crunchtriggered by a liquidity shortfall in the United Statesbanking system. It is considered by experts to be the worstfinancial crisissince theGreat Depressionof the 1930s.It brought about the collapse of crucial businesses, stock market crashes around the world, shrink in consumer wealth estimated in trillions of U.S. dollars, and a significant slump in economic activity.

The general consensus is that the fundamental cause of the crisis was the combination of a credit boom and a housing bubble. From 2000-2003, the Federal Reserve slashed interest rates from 6.5% to 1%. The immediate impact of this was a steep rise in subprime lending, which is the advancing of loans that are in the riskiest category of consumer loans and are typically sold in a market separate from prime loans. The real estate boom which was prevalent in the US in the late 20th century persisted as the price of a typical American house inflated by 124% between 1997 and 2006. However after 2006, as interest rates began to escalate and housing prices began to plummet, refinancing by the (subprime) borrowers became difficult. Foreclosure activities on subprime began to surge rapidly thereafter. The excessively accommodating monetary policies in the US and other advanced economies, lax in regulations of the banking sector, almost non existent regulations in the financial sector, and delusion caused by the credit rating agencies further deepened the crisis.

Post industrialism is simply defined as a situation in which �majority of the labour force is no longer engaged in agriculture or manufacturing but in services." The fundamental source of loss in manufacturing employment is expanded productivity. Relatively few employees are required and therefore, during the downturn manufacturers found it impossible to lay-off as the remaining employees accounted for very high revenues. Between December 2000 and May 2009, the US lost almost 5.25 million manufacturing jobs resulting in manufacturing and agriculture sector accounting for less than 10% of the total labour force. Today the largest employers are retail chains where wages, benefits and tenures are substantially lower. In retail economy work places are smaller and less inter-dependent. Also, skills need to be sufficiently generic which makes one flexible to keep moving, as compared to manufacturing sector which requires developing of firm specific skills. The result of transition to the post-industrial society has been a disaggregation of employment.

Post industrialism has another affect which was not evident prima-facie but had a huge impact. It gave rise to institutional investment wherein corporate ownership by financial intermediaries swelled. Prior to early 1980s, the �defined-benefit" pension plans encouraged long term employment relationships as the plans paid retirees benefits according to their tenure with the company and the onus of creating an investment pool, to fund the pension income, rested with the employer. However, in early 1980s, �defined-contribution" pension plans began taking effect, in which employees and firms both contributed to individually owned portable pensions. The choice and risk of making sensible investments was now transferred to employees. The expansion of this pension plan and retail investment through households propelled the growth of mutual funds. By 2001, 52% of the household stocks were held by mutual funds. The mutual fund industry boomed enormously but the growth in the industry was uneven, as the biggest beneficiaries were a handful of well-known fund complexes. As a result, these few fund families grew to become the most prominent owners of corporate world.

The reconstruction of corporate ownership in the hands of a few financial institutions corresponded with an increased focus on share price as the paramount benchmark of corporate performance. By the end of the 90s, the situation was such that corporates existed primarily to create shareholder value. The relentless focus on share price propagated �Original Equipment Manufacturer" or OEM model which concentrated on the design and marketing of the products while leaving their production and distribution largely to others. The OEM firm itself worked on adding value through intellectual property and advertising. The rationale behind this was that the stock market valued intellectual property over tangible assets. The idea was that restructuring provided investors, analysts and debt providers a simpler way to evaluate the company. Premiums were given to companies which harbored most profits for least assets. The sole focus on share price by companies further weakened employer-employee ties.

At the same time, securitisation (turning loans and other assets into tradable bonds) transformed the nature of banking and finance, allowing more kinds of assets to be traded on markets and opening new vistas for households to participate in financial markets. The idea was to enable banks to shift risk off their balance sheets by pooling their loans and remarketing them as securities. The best-known form of securitisation were mortgage-backed bonds, in which large number of mortgage loans were pooled together and divided into bonds that had more predictable and safer returns. This made additional funds available for lending and lowered the cost of mortgage. Securitisation complicated differentiating between commercial and industrial banking. Mortgage ownership was becoming more dispersed through securitisation.

The retail mutual funds increasingly waxed households to financial markets. Individuals could access capital markets in several novel ways. Households increasingly became both investors (through pension plans and retail mutual funds) and issuers (through securitised home mortgages, credit card debt, student loans, and insurance payoffs). Securitisation thus remade the household budget just as it had reformatted the banking industry.

The impacts of the financial crisis were amplified as consumers relying on increment in portfolio values suffered setbacks. Disposable income was choked and contracted consumer spending. The results reverberated globally and fatally wounded the world economy.

Another analysis is that the financial crisis is merely a symptom of another deeper crisis, which is a systemic crisis ofcapitalismitself. According to the theory, decrease inGDPgrowthrates in Western countriessince the early 1970s created a growing surplus of capital which did not have sufficient profitable investment outlets in the realeconomy. The alternative was to place this surplus into the financial market, which became more profitable thanproductive capital investment.This phenomenon has led to recurrentfinancial bubbles and is the deep cause of the current financial crisis.

The current financial crisis began in financial markets in the United States and its effects have crawled into the monetary and real economies around the world. Since it is global phenomenon, the response to it must also be global. Governments have a pivotal role to play in providing a stable economic environment in which individuals and firms can plan for the future, and collaboratively strive for growth.

Retail banking operations need to be separated from riskier investment banking businesses. A sizeable chunk of profits of banks is derived from retail banking activities which primarily focus on deposits and supporting customers, and thus need to be protected. Banks need to be returned to the private sector in a profitable way and ethics and risk training needs to be in place for all bankers. The last decades have been marked by a combination of low savings rates and high debt levels, especially in the US and UK. The Government needs to cultivate an environment that instigates and encourages saving culture. This should be addressed urgently through the reform of pensions and benefit systems. The public and private sector occupational pension needs to be on an equal footing.

Small and medium enterprises are a significant part of developed and developing economies as they act as a growth engine by creating jobs, promoting innovation, supporting stability and stimulating macroeconomic growth. Their varied requirements need to be recognised and taken into account, adopting the 'think small first' approach when designing fiscal, economic, regulatory and legal environments. There needs to be better publicised support available to SMEs at the local and national levels. Civil servants and local authority officers should have a better understanding of the circumstances and behaviour of SMEs. The public procurement market should become accessible and transparent for all sizes of business.

A G20 summit represents a pragmatic approach to finding effective solutions to key global challenges. It offers a framework for international cooperation and coordinated global action as it is represented by 20 leading industrialized and emerging economies which account for 90% of the world's GDP. The G20 needs to be formally made a long-term feature of global governance by providing it a permanent secretariat to ensure efficient operation. International Financial Reporting Standards (IFRS) is helping to make financial information more transparent and comparable across countries, industry sectors and companies. It aims at improving investor information, comparability and investment choice. It sets out to provide a single set of improved, high quality and internationally accepted accounting standards, formulated after intensive research and consultations by various experts. Focus would be on implementing these standards.

(Report by ACCA, the association of chartered certified accountant, 2009)

On one hand the bailing out of those responsible for the financial crisis has spawned disquietude among people; while on the other, the effects of the global financial thaw-out have percolated to the lives of almost every individual. The problem could have been eschewed if ideologies supporting the economic models would not have been so vociferous, influential, blinkered and unreceptive of convictions and perceptions of others. However, the situation can still be curbed if the economies world-over collaborate and join forces to co-operate with each other so as to efficiently tackle thefinancial crisis, lay the foundation for reform to avoid similar crises in the future and engender confidence among savers and investors.

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