The Global Financial Crisis ( Gfc ) - 1087 Words

The Global Financial Crisis (GFC) began in July 2007 in the United States (US) following the decline in the countries already poor credit ratings and the subsequent collapse of the US housing market and prominent investment bank Lehman Brothers which sent a wave of fear around global economies including Australia and resulted in the largest drop in global economic activity in the modern era. (W. McKibbin, A.Stoeckel, 2009, pg 1). During the years before the crisis there was a significant increase in irresponsible mortgage lending in America. The US housing market was in melt down but the Australian had moved into a consolidation period. In the US sub-prime borrowers with poor credit ratings and the inability to repay were funded mortgage†¦show more content†¦The US government took control of the world’s largest insurance company AIG. Freddie Mac and Fannie Mae were victims of the sub-prime mortgage disaster and were saved by the government. When the crisis hit Australia, we had robust foundations those being budget surpluses, debt fee and favourable terms of trade, but little did we know these strengths would be tested very shortly. Unlike the US financial system Australia prior to the GFC had implemented policies that prevented high risk individuals from obtaining a loan and hence financial institutions did not require ‘capital injections’ from the government (Reserve Bank Austr alia, 2010). Australia was reasonably successful although not immune in navigating through the worst of this financial crisis because our systems in place work effectively due to the APRA prudential standards and regulatory requirements in the financial sector. Although Australia fared the GFC better than most nations it was still impacted by it as a result of the interconnected nature of the country’s financial systems and import/export dependences. One of the biggest impacts on Australia as a result of the GFC was the rise in the level of unemployment which peaked at 13.6%. This was reflected in the 17-19 year olds searching for full-time employment, but could