It is now clear that the world markets are experiencing their worst financial crisis that has persisted since credit markets seized up last July. Global policy makers are now working aggressively to prop up the faltering economy and restore faith in the world's credit markets.

It is remarkable how a turmoil that began with subprime mortgage malaise has swept through the credit markets wreaking havoc on corporate bonds, hedge funds, complex structured investments, and agency debt. While the turmoil originated in a single sector in a single economy, the housing market in the US, it spilled-over globally across a wide range of financial markets and institutions because American mortgages were repackaged, securitized and converted into complex securities sold all over the world. Some highly questionable practices of American banks and financial institutions are behind the outbreak of the financial crisis of such a magnitude.

The subprime financial system, not just a subprime mortgage problem is the primary cause of global financial stress. To subdue the crisis, the Fed, the Bank of Canada and the Bank of England cut their interest rates to prevent from financial system free fall. Also, many commercial banks took welcome steps to quickly recognize losses and to shore up capital by inviting investments from sovereign wealth funds. In the aftermath of the recent disaster among SIVs, conduits, run on a number of hedge funds and money market funds, the world is amidst the worst financial crisis since the 1930s. The latest move towards the edge of the abyss came when the Fed guaranteed the rescue of $30 bn of Bear Stearns assets.

Leading non-American banks have also suffered and there are persistent rumors that all may not be well with a few other banks too. In the wake of crisis, the Bank of England injected a £5 bn loan package to UK banks to prop them up against financial system turmoil and Northern Rock was nationalized by the UK government. Similarly, credit markets have virtually frozen across advanced economies and stock prices of financial sector have further collapsed. Further, IMF sees slowdown in the US and a moderate slowdown in other emerging economies. Its latest estimate puts global economic expansion at 4.9%. Long before the ongoing crisis ends, the financial sector's landscape could worsen and today's credit squeeze could well develop into a full-fledged credit crunch and trigger a severe growth slowdown.

Portfolio Organizer Magazine, Global Economy, Financial Crisis, Global Policy Makers, Financial Markets, Financial System, Financial Sectors, Credit Default Swap, CDS, Sovereign Wealth Funds, SWFs, Forensic Accounting, Monetary Policy, Indian Banking Sector, International Monetary Fund, IMF, Economist.