The world financial crisis led to the collapse of several high-profile banks, the emergency
bailout of others, hundreds of billions of dollars of write-downs, departures of bank CEOs
and CFOs, fraud investigations by the FBI, hearings in the US Congress and introspection
by national governments. It brought about a downturn in global stock markets (as a result of
damaged investor confidence), which lost approximately $32 trillion in value since their peak,
equivalent to the combined gross domestic product of the G7 countries in 2008. It necessitated
intervention by governments and led to the introduction of new legislation, extensive job losses,
a dramatic fall in house prices and a significant decline in economic activity. It is considered
by the International Monetary Fund (IMF)1 and many economists to be the worst financial
crisis since the Great Depression of the 1930s. Governments and central banks responded with
unprecedented fiscal stimulus, monetary policy expansion and institutional bailouts. As expressed
by Ben Bernanke (Chairman of the US Federal Reserve), the dramatic rise in mortgage
delinquencies and foreclosures within the US subprime housing market triggered rather than
caused the financial turmoil (Bernanke 2007). However, the failure to properly price the risky
pooled subprime mortgages sold as securities (supported by unrealistically positive ratings by
credit agencies) truly precipitated the crisis. When in August 2007 the markets disregarded the
credit agencies’ rosy ratings a blanket of uncertainty descended on the investment community.
It had adverse consequences for banks and financial markets around the globe. Over a short
space of time the financial crisis in America became a global economic crisis