Financial Crisis Celine Jullien
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Financial Crisis Celine Jullien Financial Crisis Celine Jullien Presentation Transcript

  • The Financial crisis « We are living a major crisis, the crisis of the organization of financial system » Michel Aglietta, 16 septembre 2008. Céline Jullien January 2010
  • Outline Introduction A attempted summary Preliminary definitions, notions and concepts Part 1. “The” crisis I. The origin: the Internet bubble creates an instable macroeconomic environment that leads to the search of alternative sources of profits II. The sequence of events: when the new sources of profitability attracts everyone but are finally “toxic” Part 2. Getting out of the crisis I. An emergency regulation echoing the danger of a generalized banking bankruptcy II. Toward a more stringent business cycle regulation : what tools, decisions, control and international coordination ? Conclusion. The after crisis Questions and issues for a modern and efficient financial regulation
  • Introduction A attempted summary • At the origin – A simple idea – A strong assumption – A real political impulse – An instable macroeconomic context
  • Introduction A attempted summary • In cause – A loop of economic value « outside revenues » – High risk financial practices – Financial products are sold for what they are : just products! – Risks are changing hands but not holders – Individual risks are aggregated , split and on average limited as any other risks : but they are correlated and dependent on a unique estimate, the real estate market.
  • Introduction A attempted summary • In consequence – An historical crisis – With multiple origins – With tremendous issues… – …and new solutions to be built
  • Introduction Preliminary definitions, notions and concepts a) Financial system : definition, major functions b) Financial risks c) Financial markets d) Financial intermediaries e) Financial leverage f) Subprime and cash-out g) Derivatives h) Securitization : pooling, offloading, tranching i) Interest rates and monetary policy
  • References
  • Outline Introduction A attempted summary Preliminary definitions, notions and concepts Part 1. “The” crisis I. The origin: the Internet bubble creates an instable macroeconomic environment that leads to the search of alternative sources of profits II. The sequence of events: when the new sources of profitability attracts everyone but are finally “toxic” Part 2. Getting out of the crisis I. An emergency regulation echoing the danger of a generalized banking bankruptcy II. Toward a more stringent business cycle regulation : what tools, decisions, control and international coordination ? Conclusion. The after crisis Questions and issues for a modern and efficient financial regulation
  • Part 1. “The” crisis I. The origin: the Internet bubble creates an instable macroeconomic environment that leads to the search of alternative sources of profits 1. The macroeconomic context after the Internet bubble 2. Microeconomic behaviors: searching for new opportunities, taking high financial risk decisions II. The sequence of events: when the new sources of profitability attracts everyone but are finally “toxic” 1. Sequence of events 2. Short term effects
  • I. The origin 1. The macroeconomic context after the Internet bubble a) Abundant worldwide liquidity b) Low levels of inflation, with low volatility c) Low risk premiums d) Decreasing long term interest rates e) Credit expansion f) Increasing trend of real-estate prices
  • a) Abundant worldwide liquidity
  • b) Low levels of inflation, with low volatility
  • c) Low risk premiums
  • d) Decreasing long term interest rates
  • e) Credit expansion – Cheap and easy to get – Thanks to low interest rates and low risk premiums, financial leverage are important
  • f) Increasing trend of real-estate prices
  • I. The origin 2. Microeconomic behaviors: searching for new opportunities, taking high financial risk decisions a) High expected rate of return are satisfied by the new financial investments b) Conditions for granting loans are relaxed c) High risk credit are marketed d) The sophistication and complexity of financial products are hiding the risks e) The financial innovations, that should participate to the optimal allocation of risks, tend to be toxic
  • b) Conditions for granting loans are relaxed
  • c) High risk credit are marketed
  • c) High risk credit are marketed • Collateralized debt obligations (CDOs) are more and more exchanged – Revealing a preference for assuming risks without funding them! • Securitization is total, complex and opaque
  • d) The sophistication and complexity of financial products are hiding the risks – For the borrowers • Credit expansion towards the most fragile households • Together with aggressive commercial practices – For professionals • Operational risks: mistakes, frauds, etc. even more probable and possible as the products are gaining in complexity • « mark to market » risk
  • e) The financial innovations, that should participate to the optimal allocation of risks, tend to be toxic –Asymmetry of information and quality issues –The concentration of individual risks feeds the systemic risk
  • Part 1. “The” crisis I. The origin: the Internet bubble creates an instable macroeconomic environment that leads to the search of alternative sources of profits 1. The macroeconomic context after the Internet bubble 2. Microeconomic behaviors: searching for new opportunities, taking high financial risk decisions II. The sequence of events: when the new sources of profitability attracts everyone but are finally “toxic” 1. Sequence of events 2. Short term effects
  • II. The sequence of events 1. Sequence of events a) The crisis starts in summer 2007 b) And keeps on going until summer 2008
  • UN FOND SPÉCULATIF EST RENFLOUÉ COUTRYWIDE FINANCIAL CORP. MOODY’S DE 3,2 MDS $ ANNONCE LA CHUTE DE SES LA BANQUE ALLEMANDE DÉCLASSE LA BÉNÉFICES IKB S’INQUIÈTE DE LA NOTATION DES QUALITÉS DES PRODUITS PRÊTS AU S&P DÉCLASSE 7,3 LOGEMENT MILLIARDS DE $ DE LES VENTES DE RUMEUR : PRÊTS AMERICAN HOME LOGEMENTS BEAR MOODY’S 5 MORTAGE INVESTMENT NEUFS -6,6% SEARNS MILLIARDS DE $ CORP. ANNONCE SON FERMERAIT D’OBLIGATIONS INCAPACITÉ A FINANCER 2 FONDS SES OBLIGATIONS DE SPÉCULATIFS PRETS 15 juin 20 juin 22 juin 10 juillet 24 juillet 26 juillet 30 juillet 31 juillet JUIN 2007 JUILLET 2007
  • AMERICAN HOME MORTAGE INVESTMENT CORP. DEMANDE LEHMAN BROTHERS A BÉNÉFICIER DE LA LOI SUR FERME SA FILIALE BNC LES FAILLITE MORTGAGE FONDS DE BNP PARIBAS GÈLE LES SECOURS RACHATS DE 3 FONS DE EN PLACEMENT NORTHERN ROCK ALLEMAGN LA BCE INJECTE DEMANDE UNE AIDE E 3,5 MDS € 95 MDS € D’URGENCE À LA BANQUE D’ANGLETERRE LA FED RÉDUIT DE 50PB SON TAUX DIRECTEUR À 5,75% 1er aout 6 août 9 août 17 août 22 août 15 septembre AOUT 2007 SEPTEMBRE 2007
  • LA FED BAISSE SON TAUX DIRECTEUR DE 0,25 PB A LES PLACES 5,25% BOURSIÈRES DÉMISSION DU PDG DE BEAR MONDIALES STEARNS S’EFFONDRENT LA FED INJECTE $47,25 MDS DÉMISSION BUSH ANNONCE DU PDG DE UN PLAN DE MERILL DÉMISSION DU LA FED BAISSE SON TAUX RELANCE DE $150 LYNCH PDG DE DE 0,25 PB A 5% MDS. CITIGROUP 29 octobre 4 novembre 15 novembre 11 décembre 8 janvier 18 janvier 21 janvier 31 octobre OCTOBRE-NOVEMBRE 2007 DECEMBRE 2007 JANVIER 2008
  • LA FED ACCORDE LA SOCIETE GENERALE UN PRÊT PERD 4,9 MDS € D’URGENCE A L’ALLEMAGNE BEAR STEARNS ANNONCE $400 ET SUPERVISE SON LA FED MDS DE PERTES RACHAT PAS DÉMISSION DU LA FED SUBPRIME BAISSE SON BAISSE SON JPMORGAN CHASE PDG D’UBS TAUX TAUX LA FED DIRECTEUR DIRECTEUR UBS PERD 12,4 BAISSE SON DE 0,75 PB DE 0,50 PB A MDS DE FRANCS TAUX A 3,50% 3% SUISSES DIRECTEUR DE 0,75 PB A 2,25% 22 janvier 30 janvier 9 février 15 février 14 mars 18 mars 1er avril 24 janvier JANVIER 2008 FEVRIER 2008 MARS AVRIL 2008
  • SOUTIEN DES AUTORITÉS A UBS CITIGROUP FREDDIE MAC ET FANNIE MERRILL MAE MERRILL LYNCH LYNCH SE RACHÈTENT À BEN DÉLESTE A LEUR CLIENTS 49 LA BERNANKE PERTE DE 30 MDS$ BANQUE ANNONCE SA MDS$ D’OBLIGATIONS LISTE NOIR DE CALIFORNI PRIORITÉ : « TOXIQUES » 8600 BANQUES ENNE RESTAURER BUSH SIGNE LE INDYMAC PLAN DE LA STABILITÉ MISE SOUS FINANCIÈRE SAUVETAGE DE INTEGRITY BANK TUTELLE L’IMMOBILIER DE (N°10) FAIT 300 MDS$ FAILLITE 11 juillet 15 juillet 29 juillet 30 juillet 10 août 26 août 29 août 13 juillet JUILLET 2008 AOUT 2008
  • II. The sequence of events 2. Short term effects a) Liquidity crisis b) Banks bankruptcy and financial system crisis c) households patrimonial losses d) Reduced financial leverage e) Negative short term consequence on economic growth
  • Outline Introduction A attempted summary Preliminary definitions, notions and concepts Part 1. “The” crisis I. The origin: the Internet bubble creates an instable macroeconomic environment that leads to the search of alternative sources of profits II. The sequence of events: when the new sources of profitability attracts everyone but are finally “toxic” Part 2. Getting out of the crisis I. An emergency regulation echoing the danger of a generalized banking bankruptcy II. Toward a more stringent business cycle regulation : what tools, decisions, control and international coordination ? Conclusion. The after crisis Questions and issues for a modern and efficient financial regulation
  • Part 2. Getting out of the crisis I. An emergency regulation echoing the danger of a generalized banking bankruptcy 1. September 2008 : historical public policy decisions 2. “Rescue and recovery” plans II. Toward a more stringent business cycle regulation : what tools, decisions, control and international coordination ? 1. How ? 2. Who ?
  • LEHMAN BROTHERS ANNONCE 3,9 MDS$ DE PERTES GOLDMAN SACHS REJET DU PLAN ET MORGAN PAULSON PAR LE STANLEY CONGRES DEVIENNENT ENQUÊTE DU FBI LE DOW JONES HENRY LEHMAN EN DES BANQUES SUR 26 PERD 777PTS PAULSON FAILLITE COMMERCIALES ÉTABLISSEMENTS ANNONCE LA BANK OF FINANCIERS MISE SOUS AMERICA JP MORGAN TUTELLE DE ABSORBE RACHETE FANNIE MAE ET MERRILL WHASHINGTON FREDDIE MAC LYNCH L’ASSUREUR AIG MUTUAL FUND EST SAUVÉ PAR LA FED 7 septembre 15 septembre 23 septembre 26 septembre 25 septembre 30 septembre 22 septembre 10 septembre 2008 SETPEMBRE 2008
  • PANIQUE SUR SARKOSY BUSH SIGNE LE LES MARCHES ANNONCE LA MISE PLAN EN PLACE D’UNE FINANCIERS LE GOV GARANTIE DE L’ISLANDE BRITANIQUE L’ETAT POUR 320 REPREND LE ENVISAGE DE SARKOSY –PDT MILLIARS D’EUROS CONTRÔLE NATIONALISER 8 CONSEIL DE COMPLET SUR GRANDES NOUVELLE L’EUROPE – TOUT LE SECTEUR BANQUES MOUTURE DU PROPOSE UN BANCAIRE PLAN PAULSON FONDS DE LE GOV USA ACCEPTE PAR LES SAUVETAGE ENVISAGE DE TOKYO TOMBE ET SENATEURS EUROPEAN DE 300 NATIONALISER DES LA BANQUE MILLIARDS GRANDES CENTRAL D’EUROS BANQUES JAPONAISE INJECTE DES LIQUIDITE 1er octobre 4 octobre 6 octobre 8 octobre 9 octobre 13 octobre 3 octobre 7 octobre OCTOBER 2008