Introduction
The global financial crisis came to the forefront of the business world when a number of American banks and insurance companies effectively halted the global credit market which required government intervention.The Sub-Prime Mortgage Crisis was the main cause of the crisis as this caused the instability in both the American and European financial institutes. As the economy was built on credit with companies borrowing money from each other and consumers took advantage of the boom and started to borrow money to buy cars and homes, and at the end of it both investors and mortgage companies was in trouble.

The concept of subprime loans came about in the early 1900s, where loans were given to individuals who were not qualified to get a loan because they had low credit ratings or a poor loan repayment history. Fannie Mae and Freddie Mae were the leaders in the mortgage industry in the 1990s as they were promoting home ownership to those individuals who was in the low income brackets which was not normally done by the banks. This was because Subprime loans had a higher interest rate than prime rates on traditional loans. This meant individuals had to pay additional interest payments over a longer loan period and in some cases individuals was only paying the interest and never paying the principle of the loan. The financial crisis is what really exposed the flaws in these credit rating procedures.

How it began.
In September 2008, Fannie Mae and Freddie Mac two well knew Mortgage Company was taken over by the government to ensure the financial stability. Lehman Brothers filed for bankrupt, Bank of America was bought over by Merrill Lynch and American International Group (AIG) suffered when its credit rating had reduced and the Federal Government had to inject 85 billion dollars to stop it from collapsing. Soon after, JP Morgan Chase agreed to buy the assets of Washington Mutual which appeared to be the biggest bank failure in history. This factor caused a major instability in the stock markets and there was a dramatic decrease in market value in both the United States and Europe. Consumer spending began to fall and the banks became more unlikely to approve loans, as the many countries began to fall into a recession.

Ireland Financial Crisis

One of the biggest casualties of the crisis was Ireland, since the mid-1990s Ireland had enjoyed a prolonged boom by which their economy grew by 6% from 2007 to 2008, due to a low corporation tax rate, low Electronic Communication Network rates and other factors. Then in September of 2008 the Irish government finances began to show signs of trouble deficits increased, many businesses closed and unemployment increased and then they made an announcement that for the first time since the 1980s that they were having a major economic crisis that caused the country to go into a recession.? Since the Irish economy was so closely tied to the US economy which gave over 33% of inward investment into the Irish manufacturing companies. So, when U.S investment bank Lehman Brothers fell, Ireland became the first country in the economy European Union to officially enter a recession as declared by the? Central Statistics Office.

Effects of the crisis

When the crisis hit the Irish businesses began to shut down, and the Irish Stock Index fell which causes a number of immigrants to leave. Both residential and commercial property markets took a severe downfall with both sales and property values collapsed. This caused a decline in the construction sector which since the 1990s was the backbone to the Irish economy as it accounted for approximately 25% of the nation??™s Gross Domestic Product (GDP). The rapid decline in construction caused unemployment to increase by 11% and consumer spending to fall. Also, the banking sector in Ireland was affected where banks lost money due to bad debts and struggled to repair their balance sheet. Many of them have been nationalized and others are awaiting naturalization. Also a series of scandals came out in the open, one involving the Anglo Irish Bank where the Chairman resigned after failing to disclose ?81 million in loans which was loaned to another lender over the course of an eight year period.

Bailout

In November 2010, after two years of economic troubles, Ireland finally agreed to accept a rescue deal package of ?†85 billion, from the European Union and the International Monetary Fund to tackle its budget and banking crisis. The purpose of the external financial support is to help return the economy to sustainable growth and to ensure that they have a healthy functioning banking system. ?†35 billon of the total package was used to support the banking system; ?†10 billon was immediately used to inject fresh capital against expected loan losses and ?†25 billon was made available as a contingency fund, effectively an overdraft facility, to be drawn down by the banks as and when required. The remaining ?†50 billon was used for budgetary financing needs.
In February 2011, European Financial Stability Facility (EFSF) released the first tranche of ?†3.6 billion, from the euro zone rescue fund.

American International Group

On an international level Ireland was one of the biggest casualties, but on a more domestic level in the United States of America, American International Group was hit hard by the crisis. AIG is one of the world??™s leading international insurance corporations, that operate in over 130 countries and its headquarters located in New York City. AIG was once considered the fourth largest companies in the world. It focuses on four different markets: life insurance and retirement services, financial services, general insurance and asset management. This company was founded in Shanghai, China 1919 by Edwin Cornelius Vander Starr and when the business became successful he later expanded it to Asia, Latin America, Europe and the Middle East. In 1962, Starr gave the management of the U.S. Holding company to Hank Greenberg. He focused on selling insurance to a more corporate coverage than personal insurance. In 1969, Greenberg became Starr??™s successor, and later the company went public with their shares being listed on the New York stock exchange.
Over the past decade, banks and investment banks would put together risky sub-prime mortgages that they would have sold and then sell these to investors or banks in Europe. To make these mortgage investments more profitable they would purchase an AIG Credit Default Swaps or also known as debt insurance contracts.?  AIG??™s credit default swaps were insurance contracts which were not regulated. Normally these insurance policies were for three to five years. AIG did not have any of the capital reserves required to back up these policies, if they were to pay out any of these claims. Even though, AIG was not required to hold any capital in reserve as collateral on its credit default swaps as long as they could maintain a triple-A credit rating. The banks that purchased these credit default swaps had been assure that their national regulators were holding only triple-A credits mortgage products instead of the sub-prime mortgages that they were really holding which were a high risk. This proved to be their one of their downfalls.

AIG During the Crisis

On September 2008, with the collapse of some respected financial institutes such as Lehman Brother caused shock waves throughout the world and weakened investors??™ confidence in AIG. It became impossible to access capital as the credit markets deteriorated rapidly. AIG??™s credit ratings began to fall again, which triggered the New York regulators to lend them $20 billion. Soon after that AIG was faced a severe liquidity crisis. Because AIG was one of world??™s largest insurers, that was linked to many large commercial banks, investment banks, and other financial institutions through counterparty credit relationships on credit default swaps and other activities such as securities lending that its potential failure created systemic risk. The Federal Government concluded that if AIG failed it would cause severe ramifications, soon the 16 September 2008; they created a two year credit facility for which AIG and guarantee to loan up to $85 billion. The government in exchange took up to 79.9% equity ownership of AIG through preferred stock. The federal seizure of AIG represents the first time ever that a private insurance firm was controlled by the government. On October 8 2008, the Federal Board provided another bailout to the sum of $37.8 billion to help deal with the rapid declining supply of cash. On November 10 2008, AIG receives rescue package grows up to $150 billion which includes a $60 billion loan, a $40 billion capital investment and about $50 billion to buy mortgage-linked assets guaranteed by the insurer through credit-default swaps, the government also lowered their interest rate and gave them three (3) years to pay back the loan. AIG received a fourth bailout on March 2 2009, the government once again restructured it bailout of $30 billion more. With all the support AIG received from the Federal Government, they have modified their operations and structure to strengthen their financial position so that they can meet its working capital needs to repay the U.S. taxpayers. Since September 2008 AIG main objective was in restoring their financial strength, instilling a performance management culture to help reduce any unforeseeable risk and repaying the US taxpayers. AIG has already repaid some of the bailout loans received from the other some financial institutes.

The Impact of AIG

The collapse of AIG has had a major impact on the mortgage market and the banking system worldwide. Unemployment rose, homes were repossessed due to homeowners not being able to keep up with there mortgage payments, real estate prices decreased. There is a lack in confidence between the banks when it comes to lending money to each other. Government had to intervene to implement banking systems and policies.

Monetary and Fiscal Policies

The monetary and fiscal policies are two of the most important functions of the modern governments. The monetary policy centers on increasing or reducing the monetary supply to fuel the economy, while the fiscal policy uses the expenses of the government and the tax rate to fuel the economy.

Monetary Policy is used by the government to measure economic activity, specifically by manipulating the money supply and interest rates. This policy is directed to a nation??™s central bank, and in the U.S. it??™s responsible for the Federal Reserve System, which uses three main items: open-market operations, discount rate and reserve requirements. Open-market operations are used to stabilize the prices of government securities. These government securities are normal just short-term such as treasury bills. The discount rate is the interest charged by the central bank. By raising or lowering this rate alters the rates that the commercial banks charge on loan, it can also be used as a tool to combat recession and inflation.

Fiscal Policy is used by government to measure the stability of the economy, by altering the government expenditure as well as taxes. If the economy is slow, government can lower taxes, this way taxpayer will have extra cash to spend, and with an increase on public spending it would in return put cash back into the economy. Fiscal policy is more effective at stimulating a failing economy than an increasing one, partly because spending cuts and tax increases are unpopular and partly because of the work of the economic stability.?