Global Financial Crises : Bindings on India

Abstract

The intensification of the global financial crisis, following the bankruptcy of Lehman Brothers in September 2008, has made the current economic and financial environment a very difficult time for the world economy, the global financial system and for central banks .The global financial crisis originated in United States of America. Investment banks have collapsed, rescue packages are drawn up involv­ing more than a trillion US dollars, and interest rates have been cut around the world in what looks like a coordinated response. Leading indicators of global economic activity, such as shipping rates, are declin­ing at alarming rates. The current financial crises in the U.S. have originated in the indiscriminate lending of housing loans in that country’s sub-prime mortgage market. Among the clients were the investors with poor credit histories or insufficient financial resources. Sub-prime lending has resulted in high levels of defaults. The banks were laying huge bets with each other over loans and assets. Different views on the reasons of the crisis include boom in the housing market, speculation, high-risk mortgage loans and lending practices, securitization practices, inaccurate credit ratings and poor regulation of the financial institutions. In this study I will attempt to provide my interpretation of the unfolding of the present global financial crisis; how it is affecting us; why the Indian financial sector has been able to weather the crisis relatively well; the analytics of our policy response; and, finally, some implications of its longer lasting effects.