The effect of the Recent Global Financial Meltdown on the Nigeria Economy.
Abstract
This study/research was necessitated owing to the recent financial crisis that enveloped the globe, commonly referred to as the global credit crunch.
This crisis came about as a result of mismanagement of mortgaged that were made available to the masses abroad specifically the United States of America.
The crisis has its root in a banking practice called sub-prime lending or supreme mortgage. Even when Banks got to realize that there was fire on the mountain, they were shy to admit it because they were scared of being undervalued.
Like a wild fire, the whole globe was enveloped in the crisis. The researcher made use of secondary data, as many people had views that varied on the topic or issue.
The research went a long way to show to what extent the meltdown affected the stock market capitalization and GDP of Nigeria during the specified period namely-March 2008 to February 2009, in doing this the researcher employed the technique namely regression and correlation analysis.
From the study we came to see how adversely the stock market capitalization was affected whereas the GDP was not affected as such. More details are seen in the body of the research work.
Introduction
Background Of Study
Never since the 1930’s Great depression has the world faced such level of financial crisis as the current credit crunch that has threatened to undermine the stability of the world’s economic system and in turn rewrite economic theories that have hitherto been regarded as sacrosanct.
The credit crisis which was ignited in the US, but took its first victims in the UK in 2007 resulting in the collapse of Northern Rock, was triggered by rising defaults by sub-prime US mortgage borrowers; (Simon E. and Tonia O. 2008). In US there are three types of mortgages namely:
Conventional, Interest-only and Sub-Prime
In conventional mortgages, part of each month’s payment goes towards paying off the principal and part goes towards interest (Fiakpa, L. et al: 2008).
In an interest-only loan or mortgage, the borrower only pays interest each month. This makes it cheaper than a conventional mortgage.
Sub-prime mortgage is granted to borrowers whose credit history is not sufficient to get a conventional mortgage or who do not qualify for market interest rates owing to various risks factors such as income level, size of the down payment made, credit history and employment status. (Fiakpa, L. et al; 2008).
As the defaults in sub-prime US mortgage mounted, institutions had a rethink on their attitudes to risks and suddenly became scared of losing money.
References
Financial Standard, McNamara, K, 2005, Making Money, Political Development. The Green Banks and the Euro Manuscript George Town University.
Mosley L. (2003) “Global Capital and National Government”.Cambridge University Press.
New York Times.