The global financial crisis began with accumulation of cheapliquidity and resulted in an unforeseen collapse of the markets andinstitutions due to liquidity crunch. In a way, liquidity has been both thecause and effect of global fiasco. Subprime crisis in the U.S has been the major contributor towards the global financial crisis. This resulted in huge losses for Investment banks, and in process caused liquidity and credit crunch globally.The other reason why most of the Investment Banks collapsed was over leveraging. However, rising fuel and food prices,added fuel to the fire

Securitization is the process of pooling and repackaging ofhomogenous illiquid financial assets into marketable securities that can besold to investors. In the initial phases, this innovation was highlyappreciated because it helped in increasing the liquidity. It also helped inmaking the banks credit into marketable securities i.e through Asset BackedSecurities (ABS) and Mortgage Based Securities (MBS). It helped in boosting theU.S economy with increase in car and house sale. Most of the citizens in US owntheir own house and have their own cars. The bubble that has busted with theincreasing defaults in repayment of loans was never anticipated. It waspresumed to happen, but the numbers are beyond the thoughts of many economists. This has been the major crisis after “THE GREAT DEPRESSION”. The governments had learned from the previouscrisis, so they are taking faster steps to tackle the crisis.

Major economies of the world such as U.S, Japan, Germany, European countries such as Iceland, Italy, Finland etc have gone into recession. Cutting key interest rates (CRR, SLR, Repo rate, Reverse Repo rate),duty cuts, banning short selling, taxes reduction, huge bailout packages were the measures taken by major governments and supranational institutes. The tax payer’smoney has been used for stimulus packages to these companies who were mintinghuge money by investing in risky instruments.

U.S bailout package has been more than $ 1.5 trn and apart from that they have been cutting key interest rates. Fed reserve has slashed interest rates to near zero to boost the economy and pumping in huge pile of cash. Financial sector and the Automobile sector who are feeling the heat of the markets because of their faulty investment strategies and wrong measuresand because of these 2 major sectors been affected, the cascading effect has been felt by all other sectors and the global markets. Only 26 out of 8400commercial banks have collapsed in U.S which doesn’t have a major contributiontowards the financial crisis, but the investors have lost confidence in the marketsand they are taking money out of the markets which has been worrisome for thesecompanies and the markets. The major bailout was the US government is guaranteeingup $ 306 bn in problematic assets and injecting $ 20bn in capital to restoreconfidence in the Citi bank.

Apart from that the 3 Major Automobile companies have alsobeen facing the heat because of their faulty measures which can surely have atremendous impact on the global markets. A collapsed auto industry will lead todefaults of over $ 1 trillion in corporate bonds, credit defaults swaps andother financial instruments. 10% of the junk bond market is attached to GM,Ford and the financing companies. With recession underway, the biggest dangerwould be to auto parts supplier (Channel partners) and businesses around Autoplants like retailers and restaurants. It will also have an impact on the localand state government which earn from the taxes of auto sector. The domino effect of the same would be felt by other sectors and we can see "CREDIT CRISISII" if faster steps are not taken.

The US – originated subprime contagion spread across theEuropean markets and the world’s most attractive Swiss Banks have not become anexception to escape from it. Particularly UBS is the worst hit European BankingInstitution posting total write downs of $ 44 bn since the unfold of subprimecrisis in 2007. UBS's Investment banking division of the bank was responsible forcontributing to nearly 66% of losses for the company because of its investments in toxic debts. Bank of England cuts to 2%, the lowest since1951.

Japanese government gave a stimulus package of 23 trillionyen. Germany’s government announced a package of $ 641 bn, despite the factthat Germany’s GDP is 1/5 of U.S’s GDP. IMF approved a $ 6.7 bn standby loan forPakistan to help the country from financial disaster and avoid defaulting on it’sdebt. Hungary has been granted a $ 25 bn package by the IMF, the EU and theWorld Bank.

Sweden’s government had allocated $ 248 bn to Saab and Volvoin direct aid or loan guarantee, as GM and fort were anticipated selling theseentities. Sweden’s central bank also reduced the country’s official borrowingcost by 1.75%. South Korea announced a rescue package worth about $ 130bn forits banks and companies suffering from a foreign currency liquidity crunch.

The Bank of Canada cuts to 1.5%, the lowest rate since 1958.The Bank of Korea to 3%, lowest since 1999. The Irish government will provide 9bn pounds to recapitalize all its listed banks. Iceland’s central bank hasraised it’s rates from 18% to 12%.

Even the fastest growing economies, China and India are not immuneto the crisis. Even China has reduced the interest rates by 0.27% from 6.93% to6.66% in order to stimulate growth. Chinahas announced a stimulus package of $ 586 bn i.e 16% of its GDP.

While in the case of India, the package has not been high.It is almost $ 6 bn i.e 0.6% of India’s GDP. We have seen many interest ratecuts to boost the economy. CRR stands @ 5.5, SLR @ 24 %, Repo rate @ 6.5%,reverse Repo rate @ 5%. Additional LAF has also been used as a monetary tool topump in money in the economy

The man on the street will be outraged when learning that AIG executives embarked on a luxurious retreat in California that cost $4,40,000 only shortly after pleading poor and receiving a huge bailout package.

We have seen many job cuts, over 530,000 jobs were lost in Novemberitself, cost cutting is the new mantra of corporate. Even India has been facingthe heat because of the companies dependent on global exports and many job cuts here in India also, FDIinvestments reducing, M&A deals have reduced, PE investments less by 37%,conditions are expected to be worse then now, but we hope to see the scenario changein the nearby future.