The Global Financial Crisis - The Effects (Part I )

Introduction

The global financial crisis started with the U.S. Subprime mortgage meltdown in 1997. The Subprime crisis has direct impacted the financial sector and stock market in U. S. The financial crisis started in U.S. and spreads to Europe, Asia and other developing economy.

The Effects of Financial Crisis
i) Real estate sector in crisis, with fall in the housing sector and mortgage sector in U.S.

ii) Financial sector in U.S. face an unprecedented crisis. According to former Federal Research Chairman Alan Greenspan "the system is flawed''. The major European banking sector is no exception to this crisis. The crisis also affected financial center in Asia likes Singapore and Hong Kong.

iii) The financial sector has a drastic effect in the stock market. The lack of confidence and fear by investors and shareholders have cause a fall in market capitalization of up to 40% in most market through out the world.

iv) With the shortage of liquidity and fall in sales, the U.S. car industry need a major loans to avoid bankruptcy. The export oriented Japanese cars companies have to withdrawn from the sponsorship in Formula 1 sport, and South Korea Ssangyong motor company filed for bankruptcy protection.

v) The energy and oil industries see a drastic drop in demand, the crude oil price fell from a record high of above US$140/barrel to below US$40/barrel.

vi) U.S. and Europe experiences a slow down in products sales and demand in domestic market. The decline in demand have resulted in decline in production and economy growth, with some observers predicting a short to medium term recession in the economy. The fall in products demand in U.S. and Europe have a major impact on the China and Asean manufacturing sectors. The slow down in China manufacturing sectors have resulted in low demand for raw materials and commodities from Australia, Asean and other developing countries.

vii) The demand of raw materials, such as steel, platinum, copper and zine, with the exception of gold, have fallen by 45%. The fall in demand in commodities affect many developing countries. Similarly, Malaysian has seen palm oil prices soaring to historic heights to above RM4,000 a tonne, but to drop by half within a short period of time. Indonesian is not exception to the impact of low demand in commodities.

viii) The natural results of this economy slow down has seen many financial institutions and corporations retrench and fire their staffs force , with financial sector in U.S. and Europe take the lead, and follow by the manufacturing sector in Asia and other developing countries. The unemployment rate has increase in U.S., Europe and the rest of the world.