The Global Financial Crisis has been brewing for quite a while now, but it really started showing its efforts in the early 2007 and into 2008. During this period the world stock markets have fallen, large financial institutions have collapsed or been bought out, and governments of even the developed nations have had to come up with rescue packages to bail out their financial systems.

Many economists believe that the financial institutions or the banks that have been bailed out by the respective government are the ones which have led the world in recession and on the other hand the truth lies with the fact that bailing out is not the solution to the global economic meltdown. This was the deepest recession since World War Two and had the potential to affect the livelihoods of almost all in this largely inter-dependent world.

The financial meltdown has its origin in the U.S. mortgage market since the early 2000's. At that time the U.S. economy was booming and the government was more intent on making home ownership affordable to more and more people; the financial institutions had a lot of money to dispense and the real estate values were rising at a higher rate than expected. There was a lot of competition among the mortgage lenders and so to over power the other they started getting new terms and simpler ways to lend money; like �no-or-low documentation loans." This created the market for 'subprime borrowers' i.e. people who previously would not have qualified to borrow money from the market. After some time in the year 2006 the housing prices started to taper-off after rising for a long while. As the markets declined lots of borrowers decided to re-finance there already bought properties but because of hike in the interest rates, they figured out that their loan were re-priced to higher monthly payments which they were unable to adjust. Consequently, there was an imbalance as property prices kept on decreasing and the defaulters kept on increasing; this brought a bubble and led to recession.

The other problem which still persists and because of which we are here is the credit crunch. Prior to the recession the bank in the developed countries were on a lending spree. The credit worthiness of the applicants was not inspected thoroughly. It was only when the banks started experiencing bad debts that they stopped lending. Fearing that this would lead to a collapse of the banking system, the government of the developed countries started recapitalizing the banks at the cost of hundreds of billions of Euros and dollars. The state also backed the bank with guarantees on their loans. The state thought that this would bring a restoration in the banking system only with the small set back of low or no growth. But this was not the case. At this point of time banks were more concerned about bringing stability rather than providing credit. The central bank then opted to lower the Libor rate(interbank lending rate)in a hope to overcome the problem of credit availability. But at the year end 2008 it was declining. This created a situation where the Libor rate were falling due to increased liquidity but as per the then existing scenario there was not much of inter bank lending. This meant that the central bank had become more than the lenders of last resort, they were actually the sole lenders.

The financial banking crisis developed from August 2007 through to July 2008 and then exploded into the global real economy: Central Europe and Latin America were devastated in September; South-east Asia and the Middle East in October and China in November. This is a combination of a demand crisis, brought on by a credit crisis linked with a liquidity and solvency crisis in the financial sector related to a housing slump in the US, UK and several other major economies. All these factors have never combined before in such a �perfect storm."

The crisis became so severe that after the failure and buyouts of major institutions, the Bush Administration offered a $700 billion bailout plan for the US financial system. It was controversial as people believed that the culprits were being bailed out while the common man would be left to suffer. On the other hand in Europe, major financial institutions failed while few other needed bailouts by the government. Starting with Britain, a number of nations decided to nationalize some failing banks to try and restore confidence. This in itself shows how serious the issue of recession as the US initially was never in favour of helping the troubled banks as they always believed in free market ideologies.

In Iceland, where the economy was very dependent on the finance sector, economic problems had hit them hard. The banking system virtually collapsed and the government had to borrow from the IMF and other neighbors to try and rescue the economy. In the end, public dissatisfaction at the way the government was handling the crisis meant the Iceland government fell.

The impact on the banks in European countries was not very different compared to the banks in the US. For example:

1) Defaulters arising due to losses on holdings in the US subprime securities and other subprime assets.

2) The slowdown on the prices of residential properties/ assets arising in their own countries.

3) Because of interdependence between countries on grounds of funding and money markets there arose a situation of significant liquidity problems. Many institutions had to refinance there balance sheets very quarter. During market uncertainties banks were reluctant to finance other institutions and this problem led to the economic crisis become a global phenomenon.

4) In the United Kingdom high profile companies like Woolworths, MFI, Waterford Crystal/Wedgewood went into administrations hands this marked a serious build up in the economic recession or deflation.

Britain's economy in the third quarter 2009, quashes hopes that the downturn was ending and instead marking the longest recession on record. The Office for National Statistics said British gross domestic product fell by 0.4 percent between July and September, meaning the economy has contracted for six successive quarters. UK may be the only major economy to have contracted in the third quarter. In the UK, the jobless rate is expected to rise from 7.6% to 9.3% - its highest level since the early 1990s. So a lot has to be done on the Governments part to tackle the issue.

Governments have a key role to play in providing a stable economic environment in which people and businesses can plan for the future, and growth can prosper. ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants. ACCA has played a full part, regarding the causes of the crisis, including the roles of global macro-economic imbalances and financial innovation, failures in regulation, supervision, and corporate governance. This time ACCA has come out with the steps that the government should follow so that the UK does not fall in such a crisis again. The ACCA plans/suggests that the steps they suggest should be implemented in the next ten years.

The first step that they want to take is to separate retail - or at the very least depositors - from other forms of banking will have taken place. This will ensure that the banks return in Private sector in a profitable way and all the ethics and risk training are well dealt with.

According to the ACCA, UK and USA have marked serious issues by showing low levels of saving and high levels of debts. They suggest that the government should build an environment where the credit cards can be rejected for the piggy banks; thereby building the savings culture. . The other important thing is the formulation of tax policies which is often politicized; leaving the country with only short termist approach.

They also suggest that the Small and Medium sized enterprises should be elevated to Cabinet level and continuity in small business policy will be assured. The 'Think Small First' principle will not be considered as an exception but as a norm

As the global recession has demonstrated, the financial problems of a globalized world are too big to be tackled by individual countries. The G20 offers a framework for co-ordinated action. And therefore, they suggest that the current rotating secretariat should be replaced by a new and permanent one so that in situations like these action can be taken at the earliest. UK is also ready to be a part of such a global agreement where the developing are also given a chance to participate and learn.

Banking has gone digital. Millions of customer find it convenient and faster to operate their accounts online. Despite a lot of security and passwords, accounts are still hacked and data or private information is leaked, unauthorized and incorrect payments are made online on their name. This issue needs to be resolved soon. The ACCA suggests that the browsers and email systems should become more effective at protecting customers and their information.

In the fourth quarter of 2009, UK has finally managed to come out of recession but still the above mentioned steps need to be followed so that such an issue does not affect the country again.


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