4. WHAT IS A FINANCIAL COLLAPSE ?
A Financial Collapse takes place when a country experiences a sudden
downturn in the state of its economy. During the occurrence of such
event, many people will be unemployed or underemployed,
companies may go out of business, wages and benefits will drop or
stagnate, inflation will occur, the nation's gross domestic product
(GDP) will decrease and it may be difficult for many prospective
borrowers to obtain a loan .
5. 2008 Crisis! Where it all began ?
The Lehman Banking Group filled for Bankruptcy with a $630
billion debt at 2am on the Monday morning of 15 September
2008. This event is widely considered as the beginning of the crisis
This was a chain reaction and triggered down the World Banking
system as it was the largest bankruptcy in history
6. The crisis list
Saving and loans Crisis – 1984
Junk Bond Crisis – 1989
Japanese Bubble Bursts – 1992
Mexico Currency Devaluation – 1994
Barings collapse – 1995
Asian Currency Crisis -1997
Russian Currency Devaluation and Default – 1998
LTCM Bailout – 1998
Dot-com bubble Bursts – 2000
Bear Stearns Bails Out funds – 2007
Lehman Goes Bankruptcy – 2008
7. Causes for the Collapse
Boom and bust in the housing market .
High risk loans and lending practices (prominence of Ninja Loans)
Failure of Banks and financial institutions
Central bank policies .
Government policies .
8.
9. NINJA LOANS
One of the causes with the worst impact was NINJA loans it is a
highly risky form of subprime lending, often found in the mortgage
market.
A NINJA loan is a slang term for a loan extended to a borrower with
“NO INCOME NO JOB NO ASSETS". Whereas most lenders
require the borrower to show a stable stream of income or
sufficient collateral, a NINJA loan ignores the verification process.
Main cause for the failure of Banking Institutions.
10. Failure of Banks and Financial Institutions
Financial Institutions – Write Down
Financial Institutions – Bankruptcy
11. Impacts
Stock Market crashdown.
Consumer spending slowed down due to lack of cash / unwillingness .
Uncertainty in international capital markets .
Bankruptcy
U.S.A’s economic condition affected the global economy .
World economy slipped into recession ( low economic activities ) .
Exports from India , china , Korea and Taiwan decreased .
Collapse of financial system .
Job loss- Rapid Unemployment and the starting of a very long period of
recession
Very low GDP growth .
12. Stock Downfall
The immediate impact of the US financial crisis has been felt when India’s stock
market started falling. On 10 October, Rs. 250,000 crores was wiped out on a
single day bourses of the India’s share market.
The Sensex lost 1000 points on that day before regaining 200 points, an intraday
loss of 200 points.
As of mid-December of 2008, stock returns were down by 37 percent since the
beginning of the year
1950
1953
1956
1959
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
13. Damage Control
Central banks to the Rescue
Fed pumps money into the system
Interest rates in the US are nearly zero
EU and Asian central banks brought rates down dramatically .
The emergency of incorporation companies and sales of a number of big
companies to save it from bankruptcy .
The US government’s rescue plan presented to the house of representatives $ 700
billion and, after deliberations between rejection and acceptance was approved by
the council of representatives and the senate .
14. How India survived ?
Despite an unprecedented global recession, India remained the
second fastest growing in the world.
India’s GDP grew by more then 6% though out this period .
India is much less dependent than most other countries on global
flows of trade and capital .
India relies on external trade for about 20% of its GDP
To lift the economy out of the recession the government announced
a package of Rs.35,000 crores in the first instance on Dec 7,2008.
15. Conclusion
It can be ascertained that the economic meltdown or the financial collapse
of 2008 wasn’t a instantaneous phenomenon it was in the building up for
years.
Its tremors are still predominant in the global economy the recovery even
after 8 long years has not been absolute.
Ill decision making by governments financial institutions, human greed for
rapid growth, lack of political morality all contributed in the buildup of
this man made calamity.
The global systemic crisis, which itself has built up over decades, will not
be overcome until the vulnerabilities/ and contradictions that caused it are
resolved effectively.