Financial Analysis The 2008 Financial Crisis Essay

The 2008 Financial crisis is indisputably the worst financial crisis in the contemporary era. There is great a number of combining causes that ultimately lead to the collapse of the financial markets. Some of these causes include the slow deregulation reforms initiated in the ’60, the introduction of new, financial instruments which risks were not appropriately understood, and of course the new world wide interconnection occurred through securitisation. This essay aims at explaining the functions and the risks of the financial instruments that were included before the crisis, such as Collateralised Debt Obligations, Mortgage Backed Securities and Credit Default Swaps, understanding the impact of the instruments on the market and exploring their relations in the securitisation process to ultimately understand the extent of the impact of securitisation in the 2008 financial crisis. Securitisation is the process of taking an illiquid group of assets and transforming them into securitises through financial engineering (Gallant, 2009), and it involves two steps. In the first step, an originator- a company with loans or other income-producing assets, selects the assets it wishes to remove from its balance sheet, and combines them together in a reference portfolio. The portfolio is then sold to a Special Purpose Vehicle SPV - a financial institution specified in the purchasing of the assets and realisation of their off balance sheet treatment for legal and accounting purposesShow MoreRelatedEssay on Financial Crisis of 2008 Analysis528 Words   |  3 PagesIn 2008, the US experienced the traumatic chaos of a financial downturn, whose effects rippled throughout Europe and Asia. Many economists consider it the worst crisis since the Great Depression, and its alarming results are still seen today, a long six years later. 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