Period of change in the financial markets and the financial innovation: A view on 2008 global financial crisis

The development process starting in the financial field through the collapse of the Bretton Woods system, which itself was established in the 1970s after the Second World War and based on the fixed exchange rate system, has continued so far gathering speed in the 1980s. Easy and cheap access to knowledge through technological developments has enabled knowledge to be used more efficiently. These developments have brought along a financial globalization, too. Among the leading facts affecting financial globalization are the liberalisation and the innovation. On the one hand, the variety in the financial products has extended the risk options; on the other hand, it has led the market to increase in size by also increasing the number of participants. Therefore, the financial systems of the world countries have become interconnected and especially the USA-oriented global markets have come into existence. Consequently, any crunch in one country affects the other. Global financial crisis developing through the disruption in the housing market in the second quarter of 2007, has intensified especially in September 2008 after the bankruptcy of the 158 year-old financial giant Lehman Brothers which is the fifth biggest investment bank of USA. Many great organizations in USA have gone through big financial distress, some of them have been nationalized, and some have passed into other hands. Thus the world economy has faced a second great crisis since 1929 Economic Depression. It is the purpose of this study to analyze the liberalization process referring to the development and the change of the financial system since 1970s and expressing the scope of the system itself. It will also mention the effects of the financial innovation on the crises. Finally, this study will analyze the effects of the financial products especially of the derivative products on the 2008 USA Mortgage Crisis resulting from misuse.Key Words: Financial Markets, Financial Innovation, 2008 USA Global (Mortgage) Financial Crisis.