To what extent have OTC derivatives been a major factor in the global Dissertation

To what extent have OTC derivatives been a major factor in the global financial crisis - Dissertation Example (In  his 2002 Berkshire Hathaway (NYSE: BK) letter to shareholders, company chairman and CEO Warren Buffet) This dissertation paper attempts to explore the extent to which derivatives can be considered to be one of the major factors that have led to the current problems in the global financial sector and looks at what steps can be taken to prevent a crisis on this scale happening again. This shall be on the basis of a review of the available literature. OTC Derivatives and the Global Financial Crisis Table of Contents Abstract Page 2 Table of Contents Page 3 Chapter 1 Introduction Page 4 Chapter 2 Literature Review Page 6 Chapter 3 Research Methods Page 32 Chapter 4 Analysis and discussion of research findings Page 33 Chapter 5 Conclusions and recommendations Page 42 Chapter 1: Introduction Outline the project Aims and objectives Reason for choosing this The research methodology Any limitations of the research The main findings The onset of the Great Recession of 2008 was preceded by a slump in the housing market and a credit crunch that affected the entire economy of the United States. The ensuing financial crisis acquired global dimensions though at first it seemed that the US would be the hardest hit due to the crisis. Even though the US Congress passed the TARP or the Troubled Asset Relief Program to provide assistance to the banks worst hit by the crisis, the recession continued unabated. Further, the crisis itself was thought to have been brought about by a combination of factors that included poor regulatory oversight over the derivatives side of the banking business, predatory lending and the ill effects of well intentioned efforts to spread the risk associated with sub-prime lending across the financial system. This paper looks at the role of derivative instruments and derivative securitization specifically in terms of the effect that they had on the financial system and how unchecked â€Å"gambling† by the banks led to â€Å"casino capitalis m† and the resultant financial crisis that engulfed the entire economy and even other parts of the world. Since the focus of this paper is mainly on the United States and derivatives in particular, the available literature would be surveyed on these aspects. The emphasis throughout the paper would be on a critical analysis of the literature with a questioning attitude that goes beyond a normal review. The aim of this dissertation is to examine the role played by OTC Derivatives in causing the global financial crisis and the continuing aftermath of the crisis. The last part of the sentence above is significant as the derivatives having played a part in exacerbating the crisis have continued to torment the regulators and the investors alike who are yet to tackle the â€Å"volcano of derivatives† which are sitting on top of the financial system. Further, this dissertation also discusses the attempts at regulating the derivatives by the various regulatory agencies involved and the way ahead to avoid a repeat of the crisis that we saw in the winter of 2008. The dissertation is divided into different sections with the literature review and the research findings being the ones with the most emphasis. In addition to these two sections, the research methodology and the conclusions are given due weightage according to the marking criteria for the dissertation. Chapter 2: Literature Review 1.1 Background The global financia