Global Financial Crisis & Government Intervention


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  • Global Financial Crisis & Government Intervention

    1. 1. Presenters: Irene, SyL & Yukiko GLOBAL FINANCIAL CRISIS & Government Regulation 2010 Presentation Designed by SyL
    2. 2. INTRODUCTION • Yukiko • Sunny • Irene • Background • A blame game • The role of governments • Subprime mortgage • Greed • Direction of future • Free Market regulation • Impact • The whole system • Closer Observation of individual institutions • Overall Evaluation of • The need of government Systemic Risk intervention
    3. 3. IMPACTS ON USA • Financial market Dow Jones Industrial Average Foreign exchange Source: YAHOO! FINANCE
    4. 4. IMPACTS ON USA USA • Unemployment rate Source:
    5. 5. IMPACTS IN THE WORLD •World Trade (Unit : %) (Unit : %) Figure1. increase in import Figure2. increase in export volumes volumes Source : World Bank
    6. 6. IMPACTS IN THE WORLD • Global growth (unit: %) Figure3. growth in industrial production Source : World Bank calculations based on Thomson Datastream data
    7. 7. LOSSES US$ 4.1 trillion (IMF report) GDP (Gross domestic product) 2008 Source: World Development Indicators database, World Bank, 19 April, 2010
    8. 8. A BLAME GAME Roots of the problem - Greed Fear is so pervasive today because for years the financial markets — and many borrowers — showed no fear at all. Wall Streeters didn't have to worry about regulation, .....and they didn't worry about risk, .....This lack of fear became a hothouse of greed and ignorance on Wall Street — and on Main Street as well. When greed exceeds fear, trouble follows.....(Time Magazine, 2008)
    9. 9. A BLAME GAME Roots of the problem - Greed "We need to stop their greed before they have squandered all our money....","I think this is really disgraceful and very insensitive." said by the anger of ordinary people (U.K.'s Daily Mail)
    10. 10. A BLAME GAME Free Market Philosophy "The regulators as a whole didn't regulate," Some officials, often at the state or even city level, did warn of the risk but were ignored ...blames regulators for relying on a "free market philosophy" that "just let things go." (BusinessWeek, 10/9/08)
    11. 11. A BLAME GAME Free Market Philosophy Mark Duckenfield of the London School of Economics said that "Deregulation and a lack of financial oversight are not exclusive to the U.S”, "A lot of European countries embraced the free market and deregulation." .... a free-market ideology that has been variously called neo- liberalism....The political home of neo-liberalism in Australia is, of course, the Liberal Party itself (Rudd, 2009).
    12. 12. A BLAME GAME The whole economic system Georgetown University finance professor, Reena Aggarwal says that "It's so difficult to pinpoint one person or two people”,"It really was the whole system." George Soros has said that "the salient feature of the current financial crisis is that it was not caused by some external shock ... the crisis was generated by the system itself". Soros is right. (Rudd, 2009)
    13. 13. “Governments must craft consistent global financial regulations to prevent a race to the bottom, where capital leaks out to the areas of the global economy with the weakest regulation. We must establish stronger global disclosure standards for systemically important financial institutions. We must also build stronger supervisory frameworks to provide incentives for more responsible corporate conduct, including executive remuneration .” -------------------------------Mr Rudd (2009)
    14. 14. “....the free-market fundamentalism it has produced, has been revealed as little more than personal greed dressed up as an economic philosophy. And, ironically, it now falls to social democracy to prevent liberal capitalism from cannibalising itself.” “clearly the days of effective non-regulation and unconstrained financial innovation are gone, and must not be allowed to return. The consequences for the economy are too great.” -----------------------------------------------Mr Rudd (2009)
    15. 15. THE ROLE OF GOVERNMENT • Proactive and preventative • Cost of preventative measure VS Lose in Crisis • Example
    16. 16. DIRECTION OF FUTURE REGULATION • Closer observation of individual institutions • Overall evaluation of systemic risk
    17. 17. CLOSER OBSERVATION OF INDIVIDUAL INSTITUTIONS • bring new transparency to many financial markets • prevent reckless risk taking • practices of companies were so opaque and complex
    18. 18. “The far bigger failure – shared by bankers, regulators, central banks, finance ministers and academics across the world – was the failure to identify that the whole system was fraught with market-wide, systemic risk.” ———Adair Turner chairman of the Financial Service Authority
    19. 19. OVERALL EVALUATION OF SYSTEMIC RISK • An statutory requirement for analysis of the stability of the financial system. • Multiple analytic agencies • Periodic reports on the stability of financial system
    20. 20. CONCLUSION
    21. 21. QUESTIONS TIME