Global Financial Crisis: A Comparison

¶ … GLOBAL FINANCIAL CRISIS: A COMPARISON OF THE EXPERIENCE IN SAUDI ARABIA & UAE

The impact of the global financial crisis upon the countries of Saudi Arabia and the United Arab Emirates, while slower in being realized than throughout the rest of the world have nevertheless impacted both Saudi Arabia and the UAE. Since Saudi Arabia is now part of the global economy there is no way that being affected from the global financial crisis is possible however, due to the large holdings of investors and banks in Saudi Arabia and the UAE coupled with the falling prices of raw commodities, the governments and investors of both Saudi Arabia and the UAE are uniquely positioned at the present.

PURPOSE OF THE STUDY

The purpose of this study is to examine the impact of the global financial crisis and specifically to examine the experience of this crisis in Saudi Arabia and the UAE.

SIGNIFICANCE OF THE STUDY

The significance of the present study is the knowledge that will be added to the existing knowledge base of the impact of the financial crisis on Saudi Arabia and the UAE.

IV. DEFINITION OF THE FINANCIAL CRISIS

The present financial crisis has derived from more than one source although many blame this on the subprime mortgage industry. The truth is that the present financial crisis can be blamed on many aspects of economic policy and practice areas. The work of Jawai (2008) states that the problems "stem from the collapse of the dotcom boom in the early part of the decade and the subsequent period of low interest rates." (p.2)

Lower interest rates worked to drive excessive lending and risk-taking in the financial sector. In 2006, 15% of the mortgage market in the United States were loans known as 'sub-prime' loans. The banks repackaged their risks "into complex financial products and sold these to other financial institutions.

April 2007 witnessed the collapse of sub-prime lender New Century Financial and this collapse was only the first of many casualties. The British government nationalized the mortgage lender Northern Rock and soon afterwards Bear Stearns collapse due to subprime loans. Fannie Mae and Freddie Mac were nationalized in September 2008 because of the great losses suffered due to mortgage defaults. Soon afterwards Lehman Brother, the United State's fourth largest investment bank collapse and this is stated to have "greatly intensified the financial crisis." (Jawai, 2008, p.2)

V. TIME SEQUENCE OF THE GLOBAL FINANCIAL CRISIS

Month

Year Event

July

2007

Financial crisis begins with the United States subprime mortgage crisis

August

2007

US financial crisis reaches global proportion due to interaction between the world banks and Hedge Funds with subprime mortgage backed securities.

August

2007

The European Central Bank injects 95 billion euros into the European banking market due to defaults by subprime mortgage payers.