PAPER 1 Essay Example | Topics and Well Written Essays - 1500 words

PAPER 1 - Essay Example However, one thing to note is that international relations have existed as long as states and that states are sovereign and are guided by informal rules in their relations. The purpose of this paper is to describe an international event of conflict or cooperation that has occurred since 1980, and evaluate it using theoretical approaches to international relations. There are many theories such as realism, liberalism/idealism, constructivism, Marxism and feminism, but the paper will focus on liberalism and Marxism. First, a brief summary of the international event will be given in order to understand how, where and when it occurred and to explain how it can be understood as an international event. Secondly, theories of international relations (liberalism and Marxism) will be used to discuss the reasons why the event occurred. This will give the roles played by the state, non-state actors, multinational corporations, etc. Thirdly, strengths and weaknesses of the two theories in explaini ng the event will be evaluated and a conclusion made about which theory is the most effective in explaining the event. ... Both first world and third world economies were not spared and are still recovering from the effects of the crisis. The crisis began due to an asset bubble bursting. Economists have blamed the event on monetary policy failure and deregulation of financial institutions, but international relations theorists have different versions of the reasons for the crisis. Financial institutions were not mitigating risks but instead making risky investments in form of mortgage backed securities (Davies, 2010). Housing prices had gone up and the government through mortgage lenders Fannie Mae and Freddie Mac was encouraging low income earners to take up mortgages at low interest rates. The financial institutions saw an opportunity to gain and thus gave mortgages even to subprime borrowers. Mortgage brokers sold the mortgage to banks which, in turn, bundled it into products which they securitized. They borrowed money from other banks to buy mortgages and securitize thus high earnings. The interests were later to rise and home owners were unable to pay mortgages, leading to mass repossession of houses and the housing bubble burst (Kolb, 2010). Financial institutions could not lend to borrowers anymore, leading to a credit crunch and slow economic growth. Financial institutions such as Northern Rock, Lehman Brothers and Merrill Lynch collapsed. Other casualties were insurance companies and stock markets due to falling share prices. A $700 bailout was offered by the Bush administration among other measures, but the economy was badly affected (Davis, 2010). Credit tightening and massive bailouts by US, UK and other western countries were a blow to third world countries that rely on foreign aid for development.