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The Global Financial Crisis, Central Banking and the Reform of the International Monetary and Financial System

  • Michael Sakbani
Chapter
Part of the Studies in Banking and Financial Institutions book series (SBFI)

Abstract

The current financial crisis originated in the years 1999–2007 as a result of a combination of several factors. During the first five years of the 2000s, there was an extraordinary boom in the housing market, in particular in the United States. The overhang in the supply of housing opened up for financial institutions, which were flushed with liquidity obtained from the global market, the possibility of extending vast numbers of mortgages at attractive rates.1 The housing boom enabled them to double their portfolio of mortgage lending over its share ten years before; mortgages reached a plateau of 40–50 percent of their total loan assets after 2001. The second factor was the historically low interest rates set by the major Central Banks. The third was the accelerated pace of financial innovations in the context of rampant deregulation. The fourth was the virtual disappearance of the inflation fear from the screens of Central Banks. This latter was no doubt the contribution of the extraordinary growth of cheap Chinese imports in all world markets and the healthy growth of productivity in almost all the economies. Lastly, The international payments imbalances as manifest by the Chinese, South Korean and the Republic of China surpluses created a floating mass of capital in pursuit of financial investments any where in the global economy.

Keywords

Financial Institution International Monetary Fund Federal Reserve Global Financial Crisis Mortgage Loan 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Notes

  1. 3.
    The fallacy of composition refers to the observation that real bills guaranteeing bank loans have little market if all banks proceed to liquidate them at the same time. See any standard money and banking text on the real bill theory and the fallacy of composition, for example, Mishkin, F. S. (2008), The Economics of Money, Banking and Financial Markets, McGraw-Hill, international edition, eighth edition, Ch. 16, p. 420.Google Scholar
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© Michael Sakbani 2009

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