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Responses to the Global Financial Crisis

How the World Acted to Combat the Economic Downturn

Jan 13, 2009 Patrick Hinton

In September 2008, the financial world fell in chaos. Banks were closed and businesses lost billions on the stock markets. But how did the world react to the downturn?

During the last part of 2008 and carrying on into 2009, the world suffered as the world's financial sectors fell into ruin. Investment banks such as Wachovia were sold to other companies and others such as Lehman Brothers filed for bankruptcy after being rejected for emergency loans to keep them from shutting down.

The world's governments tried to react as effectively as they could, putting into effect their plans and rescue packages to cope with such an emergency.

United States

In the United States, President George W. Bush initiated what is known as the Emergency Economic Stabilization Act of 2008. It is a law that was made in response to the financial crisis that came to the forefront of the media in 2008. It allows the United States Secretary of the Treasury spend up to $700 billion on the purchase of distressed assets and to make cash injections into struggling firms. It was enacted on 3 October 2008 after a number of rejections and was signed by President Bush within hours.

United Kingdom

On 13 October 2008, Gordon Brown, the British Prime Minister revealed his £37 billion emergency bail out plan for the United Kingdom. The multi-billion pound cash injection will be made in to the Lloyds TSB, Royal Bank of Scotland and HBOS banks. The government has taken a 60% stake in the Royal Bank of Scotland in return for up to £20 billion in financial aid. Barclays, one of the main UK banks, is expected to receive a smaller amount, although the bank hopes to raise nearly £10 billion by other means.

Germany

On 28 October 2008, the European Commission approved a €500 billion emergency rescue plan to rescue the country's financial institutions. German Chancellor Angela Merkel hoped that the plan would restore confidence in the country's banks and stock markets. The emergency package is split into two parts:

Up to €400 billion is to be spent on bank guarantees to restore market liquidity.
Up to €100 billion is to spent up helping struggling banks and financial companies.

FranceOn 15 October 2008, the French Assembly approved the government's financial bail-out plan. French President, Nicolas Sarkozy devised a €360 billion plan that would offer loan guarantees and cash injections to prevent the failiure of the country's banks. The package is also split into two parts with €320 billion going into securing loans and the remaining €40 billion to be invested into the county's financial companies.

Many governments have unveiled and put into action very similiar financial rescue packages. There will be no real way to tell how successful they have been, or will be for a number of months and even years.

For a Guide to the Start of the Financial Crisis. Click here

Sources:

http://www.france24.com/en/20081014-french-mps-approve-government-bailout-plan-financial-crisis

http://economictimes.indiatimes.com/EU_approves_German_financial_bailout_plan/articleshow/3649011.cms

The copyright of the article Responses to the Global Financial Crisis in Investment is owned by Patrick Hinton. Permission to republish Responses to the Global Financial Crisis in print or online must be granted by the author in writing.

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