If the value of the house declines only 5%, the homeowner is wiped out. The total leverage of companies like Lehman is difficult to calculate, but it is not unlike that of a highly over-leveraged homeowner. Even small declines in the value of its assets can jeopardize everything.
With Lehman as well as Fannie Mae and Freddie Mac, the meltdown destroyed common stockholders. Shareholders are at the absolute bottom of the capital pyramid. For example, when a bank gets maid back, senior lenders get paid in full first, before shareholders get anything. And just as the bank is more powerful than the homeowner, lenders are more powerful than the shareholders. So in this financial crisis, the majority of the credit is actually owned by other financial institutions or foreign governments. This is where the Fed comes into play. They can let the shareholders lose money but cannot let the foreign countries lose their money. If the Fed were to allow the loss of the foreign credit in the financial crisis, our countries ties would be weakened and we would no longer be trusted as a stable investment. .
The World Bank warns civilians of the financial crisis and how its affects of high unemployment rates worldwide, low growth in developed countries, and access to financing for developing countries. The World Bank has committed to helping keep children in school, opening health clinics, and micro financing loans. Since the crisis hit in 2008, the world bank committed $196.3 billion to developing countries to provide education, good health, and provided much-needed investments to crisis-inflicted countries. .
The International Monetary Fund (IMF) has doubled its lending power with over $430 billion as a reinforced safety net to bail out countries during the global financial crisis. This is related to globalization because representatives in India strongly feel that contributions should be voluntary and not linked with future voice.
