In the period 2004-2006, US$ 1.4 trillion worth of mortgages had been securitised.This represented 79.3% of all sub-prime mortgages, Lapavitsas(2009). Although shares in the affected banks fell, the The shares in RBS and Lloyds have now started to be sold off. The article covers the financial crisis in 2008 when the then New Labour government rescued UK banks; the economic crisis in 2009 which resulted in economic stimulus measures; and the fiscal crisis of increasing national debts and budget … Some banks had larger chunks of securitised debt on their balance sheets than other banks while some banks had no exposure to securitised debt at all. The latter suggests that prior to this crisis UK economic policy centred on three principles which included fiscal prudence, low inflation and inadequate regulation and supervision of the UK banking sector. Furthermore, the economic crisis has led to unprecedented economic policy co-ordination at an international level with policy formulation at the national and international level constantly evolving, Pauly (2009).Hodson et al (2009) suggests that the policy paradigm which was followed by the UK Labour Party following its 1997 election victory was essentially the New Keynesian consensus on macroeconomic policy, the composite of policies which changed after the crisis. Subsequently, broadly similar measures were introduced by the United States and the European Union in response to the financial crisis.The announcement came less than 48 hours after Britain's leading share index, the The plan provided for several sources of funding to be made available, to an aggregate total of £500 billion in loans and guarantees. This is indicative of the fact that perhaps the pre-crisis policy of targeting inflation was set at too lower rate and a higher rate of perhaps 5% should have been operational to give more flexibility to the Bank of England when using monetary policy. After two unsteady weeks at the end of September, the first week of October had seen major falls in the stock marketand severe worries about the stability of British banks. The government still faces the problems associated with the need for co-ordinated action amongst nation states to deal with the crisis as well as the prospect that there may be a second credit crisis which involves not banks or firms but consumers and sovereign states.To export a reference to this article please select a referencing stye below:If you are the original writer of this essay and no longer wish to have your work published on the UKDiss.com website then please:Your UKEssays purchase is secure and we're rated 4.4/5 on reviews.co.ukAll work is written to order. It has also been suggested in the literature that the UK economy will contract by about 4% in 2009 with inflation falling by 1.7% and unemployment reaching 3 million before a sustained recovery kicks sets in, NIESR (2009).
After 2008 the UK was limited in its ability to take discretionary fiscal action by the significant burden that bank bail-outs had on public finances. A consequence of this was that the liabilities side of the bank’s balance sheet began to increase. The subsequent busting of the US housing bubble made the securitised debt worthless and as a consequence lending in the interbank lending market dried up with banks waiting to fail with disastrous consequences. Indeed the government’s borrowing requirements increased 5 fold from its level in 2007-2008 to its level in 2008-2009 with the borrowing requirement moving from2.3% of its GDP in 2007-2008 to 11.3% in 2008-2009. F 7 F By January 2008 however, the Government had to admit defeat: F 8 F In his statement the Chancellor set out the future financial restructuring and ownership options for the bank. The Overnight Indexed Swap rate was exceeded by the interbanklending rate after August 2007 with the difference reaching a peak in the last quarter of 2008, Lapavitsas (2009). Labour has criticised the Conservative government for making a huge loss for taxpayers on the sale of the RBS shares. At the same time the cost of borrowing to firms began to increase, making it more expensive for them to be able make productive investments which maintained current employment and generated further employment.
For example, if inflation is high and the nominal rate of interest is low, then it is possible to have negative levels of the real interest rate, Hodson et al (2009).
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