International finance Essay Example | Topics and Well Written Essays - 1750 words

International finance - Essay Example This traditional system increased the necessity for the bankers to carefully evaluate the creditworthiness of debtors. However, as the years passed, a huge change was observed in the entire system of raising and borrowing funds. Under the new system it was observed that brokers started raising funds and lent it to the borrowers instead of the bankers. This particular process was termed as â€Å"originate and distribute model† wherein the brokers were paid depending upon the number of mortgages they sold to the borrowers. This in turn played a huge role in causing the financial crisis, as the brokers were not concerned whether the borrowers defaulted from the mortgage owing to limited liability in the transaction; instead they were only concerned about selling more number of mortgages. Consequently, the economies of numerous Asian and European nations were adversely affected by the US securitization system. For instance, there was a 4% fall in the GDP of Japan in the year 2009 wherein there was heavy decline in the overall industrial production of the nation due to which, its economy suffered largely. Thus, it was considered that one of the major causes for the financial crisis was due to the change in the U.S. mortgage industry (Allen and Carletti, 1-43). Global imbalances and the advent of the US housing bubble were also considered as a cause for the financial crisis being faced by the economy of various nations. It was believed that global imbalances resulted in bursting the US housing bubble, due to which, the global financial crisis occurred. Correspondingly, it is argued that the global imbalances was a result of economic policies framed in the East Asian regions, export-led development strategy, undervaluation of the exchange rate in China and accrual of global reserves that was driven by self-insurance purposes. Export-led development strategy was also considered as a cause due to the